When it comes to security price momentum, many people will look at the general trend of a security without fully understanding the technical basis of the term. What Momentum really tells us, however, is whether the trend will continue or reverse. Without technical analysis and events like Momentum, many investors would buy high and sell low.
Understanding Momentum In some ways, Momentum is very similar to the MACD oscillator as it measures how much change a security's price has seen over a predetermined period of time. Understanding how technical analysis works on an unbiased, statistical level as well as using Momentum will allow investors to determine whether a systemic change in price is part of the normal up-and-down of the market, or if it is instead a strong bearish or bullish signal. Essentially, Momentum tells us whether a given price trend will continue or reverse.
In other words, Momentum allows investors to see the true strength of particular price trend. When relying on multiple technical analysis tools in conjunction with Momentum, investors are better able to understand the true, underlying price trend. Armed with this information, investors can make appropriate changes to their security holdings. Making such important decisions can become difficult at best without the assistance of technical analysis tools.
Calculating Momentum One of the downfalls with technical analysis is that there is a heavy mathematical component to many of the events. While this not entirely true for Momentum, investors will need to understand the basic formula required to obtain a Momentum reading. Simply, Momentum is calculated by dividing the Closing Price by the Closing price ten periods ago, and multiplying it by 100. [Close/(Close 10 time-periods ago) * 100].
Trading on Momentum Basing trade decisions on Momentum is quite simple. If the Momentum value is greater than zero, then a bullish signal is trigger; less than zero, a bearish signal is triggered. Investors should, however, be cautious in that extremely higher low values might not suggest a reversal but instead a continuation of the existing trend. For example, where investors are looking to sell, instead of trading on Momentum, investors should wait for the actual security price to begin its fall before committing to selling.
In fact, with most signals derived through technical analysis, investors are advised to use other signals or patterns to confirm or refute a trade opportunity. Momentum is often used to confirm other events or price trends.
Despite Momentum being a fairly simple even to calculate, combining it with a dozen or more other events can become burdensome. Most investors rely on trading software to calculate buying opportunities based on technical analysis. Some trading software will even make simple buy and sell recommendations. While understanding technical analysis is important, completing the work yourself is not.
Understanding Momentum In some ways, Momentum is very similar to the MACD oscillator as it measures how much change a security's price has seen over a predetermined period of time. Understanding how technical analysis works on an unbiased, statistical level as well as using Momentum will allow investors to determine whether a systemic change in price is part of the normal up-and-down of the market, or if it is instead a strong bearish or bullish signal. Essentially, Momentum tells us whether a given price trend will continue or reverse.
In other words, Momentum allows investors to see the true strength of particular price trend. When relying on multiple technical analysis tools in conjunction with Momentum, investors are better able to understand the true, underlying price trend. Armed with this information, investors can make appropriate changes to their security holdings. Making such important decisions can become difficult at best without the assistance of technical analysis tools.
Calculating Momentum One of the downfalls with technical analysis is that there is a heavy mathematical component to many of the events. While this not entirely true for Momentum, investors will need to understand the basic formula required to obtain a Momentum reading. Simply, Momentum is calculated by dividing the Closing Price by the Closing price ten periods ago, and multiplying it by 100. [Close/(Close 10 time-periods ago) * 100].
Trading on Momentum Basing trade decisions on Momentum is quite simple. If the Momentum value is greater than zero, then a bullish signal is trigger; less than zero, a bearish signal is triggered. Investors should, however, be cautious in that extremely higher low values might not suggest a reversal but instead a continuation of the existing trend. For example, where investors are looking to sell, instead of trading on Momentum, investors should wait for the actual security price to begin its fall before committing to selling.
In fact, with most signals derived through technical analysis, investors are advised to use other signals or patterns to confirm or refute a trade opportunity. Momentum is often used to confirm other events or price trends.
Despite Momentum being a fairly simple even to calculate, combining it with a dozen or more other events can become burdensome. Most investors rely on trading software to calculate buying opportunities based on technical analysis. Some trading software will even make simple buy and sell recommendations. While understanding technical analysis is important, completing the work yourself is not.
