Momentum indicators

Momentum indicators

Momentum” in general refers to prices continuing to trend. The momentum indicators and ROC indicators show trend by remaining positive while an uptrend is sustained, or negative while a downtrend is sustained. A crossing up through zero may be used as a signal to buy, or a crossing down through zero as a signal to sell.

3 rise over 20 days, whereas ROC might show that as 0. One can choose between looking at a move in dollar terms, relative point terms, or proportional terms. The zero crossings are the same in each, of course, but the highs or lows showing strength are on the respective different bases. The conventional interpretation is to use momentum as a trend-following indicator. This means that when the indicator peaks and begins to descend, it can be considered a sell signal.

The opposite conditions can be interpreted when the indicator bottoms out and begins to rise. This is the slope or steepness of the SMA line, like a derivative. This relationship is not much discussed generally, but it’s of interest in understanding the signals from the indicator. When momentum crosses up through zero it corresponds to a trough in the SMA, and when it crosses down through zero it’s a peak.

Forex ladysun