Momentum Stock Indices Technical Analysis & Momentum Oscillator Stock Indices Signals

Momentum indicator uses math equations to calculate the line of plotting. Momentum measures the velocity with which stock index price changes. This is calculated as a difference between the current stock index price candle & 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 index prices rises, the bigger the increase in momentum. The faster that stock index prices decline, the bigger the decrease in the momentum.

As the stock index price movement starts slowing down the momentum will also start to slow down and return to a median level.

Momentum

Indices Technical Analysis & Generating Stock Indices Signals

This indices technical indicator is used to generate technical buy and sell signals. The three most common methods of generating trading signals used in stock index trading are:

Zero Centerline Stock Indices Trading Crossovers Indices Trading Signals:

• A buy trading signal is generated when Momentum crosses above zero
• A sell trading signal is generated when Momentum crosses below zero

Overbought/Oversold Levels:

Momentum is used as an overbought/oversold indicator, to identify potential overbought & oversold levels based on previous readings: the previous high or low of the momentum is used to figure out the overbought and oversold levels.

• Readings above the overbought level mean the stock indices instrument is overbought and a stock index price correction is pending
• While readings below the oversold level the stock index price is oversold & a stock index trading price rally is pending.

Stock Indices Trend Line Breakouts:

Stock Indices 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 downwards stock indices trendline 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 index trading signal.

Technical Analysis in Stock Indices Trading