Technical Indicators - Momentum

The Momentum indicator compares where the current price is in relation to where the price was in the past. How far in the past the comparison is made is up to the technical analysis trader. The calculation of Momentum is quite simple (n is the number of periods the technical trader selects):

• The current price minus the price n-periods ago

Hence, if the current price is higher than the price in the past, then the Momentum indicator is positive. In contrast, when the current price is lower than the price in the past, then the Momentum indicator is negative.

1. Momentum Buy and Sell Signals
2. Momentum Divergences

Technical Indicators - Momentum Divergences

Identifying divergences between price and technical indicators is important aspect of technical analysis trading. Bullish divergences can signal a trader to exit their short position; similarly, bearish divergences warn that prices could correct and it is advisable to exit any longs.
In the chart below of the S&P 500 exchange traded fund (SPY), Momentum divergences can be seen:

Technical Indicators - Momentum, Buy and Sell Signals

An example of the Momentum indicator is shown below in the chart of the E-mini Nasdaq 100 Future:

Potential buy or shortsell entries are shown above in the chart.

Technical Indicators - RSI Alternative Buy and Sell Signals and Divergences

An alternative way that the Relative Strength Index (RSI) gives buy and sell signals is given below:

• Buy when price and the Relative Strength Index are both rising and the RSI crosses above the 50 Line.
• Sell when the price and the RSI are both falling and the RSI crosses below the 50 Line.

An example of this methodology for buying and selling based on 50 Line crosses is given below in the chart of Wal-Mart (WMT):

Technical Indicators - RSI Buy and Sell Signals

The chart below of eBay (EBAY) shows how the RSI can generate easy to follow buy and sell signals: