As far as momentum goes, a lot of investors confuse trendline with true momentum. In fact, Momentum as a technical tool, tells investors whether that trendline is more apt to continue or reverse. Using technical analysis and events like Momentum, investors are less likely to buy high and sell low.
What Is Momentum Similar to the Moving Average Convergence-Divergence (MACD) oscillator, Momentum measures how much a security's price has changed over a given time. With a understanding of technical analysis and this particular event, investors will understand whether a slight pull back in price is part of the normal fluctuations of stock prices or if it is indeed a bearish signal for the price.
More specifically, Momentum tells investors about the strength of the underlying price trend. Using this type of technical analysis allows investors to determine overbought and oversold conditions in a security and decide whether opening or closing a position is called for. Such decisions are normally impossible to make based on security prices alone.
Calculating Momentum One of the downfalls with technical analysis is that there is a heavy mathematical component to many of the events. While this not entirely true for Momentum, investors will need to understand the basic formula required to obtain a Momentum reading. Simply, Momentum is calculated by dividing the Closing Price by the Closing price ten periods ago, and multiplying it by 100. [Close/(Close 10 time-periods ago) * 100].
Trading on Momentum When it comes to executing trades based on Momentum, the reading is quite simple to understand. Values above 0 are bullish and values below 0 are bearish. A word of caution however is that extremely higher low values might suggest a continuation of the existing trend. In the case of a sell, investors are urged to trade only if prices peak and then begin to fall and not trade before they begin to fall.
When it comes to trading on technical analysis events, investors should always use other events to confirm or refute positions they are currently considering. Never make a trade based on one technical signal. Momentum can often serve to confirm or refute other events or even the underlying price trend in a particular security.
Despite Momentum being a fairly simple even to calculate, combining it with a dozen or more other events can become burdensome. Most investors rely on trading software to calculate buying opportunities based on technical analysis. Some trading software will even make simple buy and sell recommendations. While understanding technical analysis is important, completing the work yourself is not. - 31876
What Is Momentum Similar to the Moving Average Convergence-Divergence (MACD) oscillator, Momentum measures how much a security's price has changed over a given time. With a understanding of technical analysis and this particular event, investors will understand whether a slight pull back in price is part of the normal fluctuations of stock prices or if it is indeed a bearish signal for the price.
More specifically, Momentum tells investors about the strength of the underlying price trend. Using this type of technical analysis allows investors to determine overbought and oversold conditions in a security and decide whether opening or closing a position is called for. Such decisions are normally impossible to make based on security prices alone.
Calculating Momentum One of the downfalls with technical analysis is that there is a heavy mathematical component to many of the events. While this not entirely true for Momentum, investors will need to understand the basic formula required to obtain a Momentum reading. Simply, Momentum is calculated by dividing the Closing Price by the Closing price ten periods ago, and multiplying it by 100. [Close/(Close 10 time-periods ago) * 100].
Trading on Momentum When it comes to executing trades based on Momentum, the reading is quite simple to understand. Values above 0 are bullish and values below 0 are bearish. A word of caution however is that extremely higher low values might suggest a continuation of the existing trend. In the case of a sell, investors are urged to trade only if prices peak and then begin to fall and not trade before they begin to fall.
When it comes to trading on technical analysis events, investors should always use other events to confirm or refute positions they are currently considering. Never make a trade based on one technical signal. Momentum can often serve to confirm or refute other events or even the underlying price trend in a particular security.
Despite Momentum being a fairly simple even to calculate, combining it with a dozen or more other events can become burdensome. Most investors rely on trading software to calculate buying opportunities based on technical analysis. Some trading software will even make simple buy and sell recommendations. While understanding technical analysis is important, completing the work yourself is not. - 31876
About the Author:
Christopher Fitch manages the latest website about Investment Management at the MutualFundSite.org. as well as a the website about Fixed Rate Savings at FixedRateSavings.net.
