Momentum Indicators

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Momentum Group

Momentum measures the velocity of price changes as opposed to the actual price levels themselves.

It measures the rates of ascent or descent of prices by continually taking price differences for a fixed time interval. The formula for momentum is:

M = C – C"x"

Where C is today's market close and Cx is the close “x" days prior, the resultant line graph is plotted around a zero axis.
Often the volume of trades is also factored into the calculation of the various momentum indicators.

Indicators in the momentum indicator group are designed to go beyond analysis of price movements and ascertain the direction of the market on the basis of where the market will move to, as opposed to where the prices currently are.

Momentum indicators determine the latent strength or weakness of a trend as it progresses over time. Momentum is highest at the beginning of a trend and lowest at trend turning points. Any divergence of directions in price and momentum is a warning of weakness; if price extremes occur with weak momentum, it signals an end of movement in that direction. If momentum is trending strongly and prices are flat, it signals a potential change in price direction.

This indicator is especially popular with futures traders who adjust the time period used in the calculation to a very low figure to create an extremely sensitive indicator. A larger time period produces a smoother, more reliable signal.

Momentum Indicators include:

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