Momentum Stock Indices Technical Analysis and Momentum Oscillator Stock Indices Signals
The momentum indicator uses equations to calculate the line of plotting. Momentum measures the velocity with which stock index price changes. This is calculated as the difference between the current stock index price candlestick and the average stock index price of a selected number of stock index price bars ago.
Momentum represents the rate of change of the stock index price over those specified time periods. The faster that stock indices prices rises, the bigger the increase in momentum. The faster that stock indices prices decline, the bigger the decrease in momentum.
As the stock index price movement starts to slowdown the momentum will also slowdown and return to a median level.
Stock Indices Technical Analysis and Generating Stock Indices Signals
This indicator is used to generate technical buy and sell stock indices signals. The three most common methods of generating trading signals used in stock index trading are:
Zero-Centerline Crossovers Signals:
- A buy stock indices signal is generated when Momentum crosses above zero
- A sell stock indices signal is generated when Momentum crosses below zero
Momentum is used as an overbought/oversold indicator, to identify potential overbought and oversold levels based on previous readings; the previous high or low of the momentum is used to determine the overbought and oversold levels.
- Readings above the overbought level mean the stock indices instrument is overbought and a stock indices price correction is pending
- While readings below the oversold level the stock index price is oversold and a stock indices price rally is pending.
Stock Indices Trend Line Breakouts:
Stock Indices Trading Trend lines can be drawn on the Momentum indicator connecting the peaks and troughs. Momentum begins to turn before stock index price thereby making it a leading indicator.
- Bullish reversal - Momentum readings breaking above a downward stock indices trend line warns of a possible bullish reversal stock indices signal while
- Bearish reversal - momentum readings breaking below an upward stock indices trend line warns of a possible bearish reversal stock indices signal.