Momentum Stocks Analysis & Momentum Oscillator Stocks Signals
The momentum indicator uses math equations to calculate line of plotting. Momentum measures the velocity with which stocks price changes. This is calculated as a difference between the current stocks price candlestick and the average stocks price of a chosen number of stocks price bars ago.
Momentum represents the rate of change of the stocks price over those specified time periods. The faster that stocks prices rises, the bigger the increase in momentum. The faster that stocks prices decline, the bigger the decrease in momentum.
As the stocks price movement begins to slowdown the momentum will also begin to slowdown & return to a median area.
Momentum
Stocks Analysis & How to Generate Trade Signals
This stocks indicator is used to generate technical buy & sell signals. The three most common methods of generating trading signals used in stock trading are:
Zero Centerline Stocks Trading Crossovers Stock Trading Signals:
- A buy signal is generated when Momentum crosses above the zero
- A sell 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 the stocks instrument is overbought and a stocks trade price correction is pending
- While readings below the oversold level the stocks price is oversold and a stocks price rally is pending.
Stocks Trendline Break Outs:
Stocks Trend lines can be drawn on the Momentum indicator connecting the peaks and troughs. Momentum begins to turn before stocks price therefore making it a leading indicator.
- Bullish reversal - Momentum readings breaking above a downward stocks trendline warns of a possible bullish reversal stocks signal while
- Bearish reversal - momentum readings breaking below an upward stocks trend line warns of a possible bearish reversal stocks signal.
Analysis in Stocks Trading