The momentum is a stock market indicator of oscillator type that measures the speed in the movement of prices with respect to «n» periods.
Generally, this indicator usually uses a study of between 10 and 12 periods, but is fully customizable to the analysis of each investor. This indicator is very simple to calculate since it measures the difference between today’s close at the close of N days before. Its use allows to identify changes in the price trend.
Momentum technical interpretation
The momentum is represented around a neutral line and its technical interpretation is based on the cuts provided by the momentum line with respect to the zero axis. In this way, the indicator can give buy or sell signals taking into account the following parameters:
- Cut from the momentum line to the center axis from zeroup that provides a buy signal or down that provides a sell signal.
- Divergences of the momentum line with respect to the price.
- Change in the slope of the momentum line.
In general, it is a useful indicator as long as it is combined with more analysis tools since in times of high volatility it reacts quite quickly to changes in the price and allows investment decisions to be made more professionally and objectively.
On the other hand, the momentum measures the changes in the slope of a moving averageand adds another argument to use this indicator since it allows to better identify a possible change of trend of this one, and in this way, to introduce a purchase or sale of a more skillful and more secure way, taking into account that it can also give a wrong signal.
In conclusion, we can say that there is no perfect stock indicator but we can say that the right combination of several can help interpret the price action more professionally.