Momentum: An Overall Change Rate Indicator
Posted by Edward Dy on July 6th, 2008
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Photo credit forexfolks
In the area of technical analysis, momentum refers to the overall change rate in an asset’s price. Getting the Momentum is pretty straightforward: take the trendline’s slope, which tracks an asset’s price levels over time.
Usually traders take momentum as a measure of a market’s volume. If you see that there is a rapid price change in a market (indicative of high momentum), chances are a significant number of traders are either buying or selling to force a the price shift in either direction.
If you get either an extremely high or extremely low values for momentum then this can be indicative that the asset in question is either overbought or oversold.
When the momentum reaches extreme low and then all of a sudden surges back across the zero line, this is usually indicative of a strong signal to buy. Conversely, if momentum reaches extreme high and falls all of a sudden beneath the zero line then it is indicative of a sell signal. Traders treat this as a leading indicator of a particular asset’s price behavior as well the market’s overall character, whether either bullish or bearish.
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