Momentum Indicator is one of the simplest momentum oscillators, measuring the speed of price change by calculating the difference between current price and price N periods ago. Momentum helps traders identify acceleration or deceleration of price movements, predicting trend strength and potential reversals.
Momentum = Close(t) - Close(t-n) Where: Close(t) = Current closing price Close(t-n) = Closing price N periods ago n = Number of periods (standard 10 or 14) Positive values indicate upward momentum Negative values indicate downward momentum Zero line indicates price same as N periods ago
Standard Momentum (10-14 periods): Most commonly used
Short-term Momentum (5-7 periods): More sensitive, suitable for short-term trading
Long-term Momentum (20-30 periods): Smoother, suitable for long-term trend analysis
Momentum Percentage: (Current Price / Price N periods ago) × 100, facilitates comparison
Momentum > 0: Price rising, positive momentum
Momentum < 0: Price falling, negative momentum
Momentum Crosses Above Zero: Changing from decline to rise, buy signal
Momentum Crosses Below Zero: Changing from rise to decline, sell signal
Momentum Makes New High: Strengthening upward momentum, trend accelerating
Momentum Makes New Low: Strengthening downward momentum, trend accelerating
Bearish Divergence: Price makes new high but momentum doesn't, signals weakening upward momentum
Bullish Divergence: Price makes new low but momentum doesn't, signals weakening downward momentum
Momentum Trendline Break: Momentum breaks trendline, signals trend change
Momentum Indicator is best used for identifying trend strength and potential reversal points. In strong trends, momentum continues making new highs or lows. When momentum begins weakening (stops making new highs/lows), may signal imminent trend reversal or consolidation. Momentum divergence is powerful reversal signal, especially when occurring near key support/resistance. Many traders combine momentum with trend indicators, seeking momentum confirmation in trend direction.
Simple and intuitive calculation, clearly shows speed of price change, strong divergence prediction capability, applicable to all markets and timeframes, can provide early warning of trend changes
Prone to false signals, sensitive to price noise, no clear overbought/oversold thresholds, requires combination with other indicators, significant lag
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