Momentum Oil Trading Technical Analysis & Momentum Oscillator Trading Signals

Momentum indicator uses math equations to calculate the line of plotting. Momentum measures the velocity with which crude oil price changes. This is calculated as a difference between the current crude oil price candle and the average crude oil price of a selected number of crude oil price bars ago.

Momentum represents the rate of change of the crude oil price over those specified time periods. The faster that oil prices rises, the bigger the increase in momentum. The faster that oil trading prices decline, the bigger the decrease in momentum.

As the oil price movement begins to slowdown the momentum will also begin to slowdown & return to a median area.

Momentum

Oil Trading Technical Analysis & Generating Trading Signals

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

Zero Centerline Crude Oil Trading Crossovers Oil Trading Signals:

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

Oversold/Overbought Levels:

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 & oversold levels.

• Readings above the overbought level mean oil is overbought and a oil trade price correction is pending
• While readings below the oversold level the crude oil price is oversold & a oil price rally is pending.

Oil Trading Trend Line Break-outs:

Oil Trading Trend lines can be drawn on the Momentum indicator connecting the peaks and troughs. Momentum begins to turn before crude oil price thereby making it a leading indicator.

• Bullish reversal - Momentum readings breaking above a downwards oil trend-line warns of a possible bullish reversal oil signal while
• Bearish reversal - momentum readings breaking below an upward oil trend line warns of a possible bearish reversal oil signal.

Technical Analysis in Crude Oil Trading