Momentum (Mom)

The Momentum study plots the difference between the current price and a prior price (you decide prior time). Momentum is centered on zero; it is positive when price is above its prior value and negative when it is below. The unit used for measurement is the minimum scale increment of the market being studied.

Momentum may simply be used to measure the net change of a market between two bars.

Momentum is similar to Rate of Change, as it is a direct measurement of market movement.

Momentum may be used as an oscillator type of study. Accordingly, users often define OB/OS conditions to identify when the market has achieved a significant move.

Momentum is an unbounded study making OB/OS levels difficult to define.

Selling an OB market or buying an OS market is effective in a trading range market but is likely to result in large losses during a trending market. If the market is trending the Momentum may stabilize indicating the market is continuing to move at a persistent rate. Traders may want to use an additional condition or set of conditions to confirm a trading signal. The placing of another momentum study such as a Moving Average or Moving linear Regression will reduce the number of trade signals.

Momentum, like other oscillators, may be used to identify divergence or confirmation of a new price extreme. A divergence indicates the market has lost its momentum or has become highly volatile and is likely to consolidate or reverse. Confirmation indicates the market is still accelerating away from its moving average and follow through is likely.

A difficulty with using divergence analysis on Momentum is its calculation is based off of two specific dates and changes from bar to bar in the earlier date will affect the value of Momentum to the same degree as changes in the current price. Therefore, using a long look back period is one way of smoothing out false signals.

Momentum Parameters