What is Momentum Analysis? When is it Used?

Momentum is another word for the rate of change of the price of security moving through space and time. To calculate the rate of change, (momentum analysis)  you may take the closing price and subtract the closing price from 10 days ago.  Momentum covered a number of technical indicators that calculated in various ways. You can measure the momentum in many different ways because you have four price bar component to work as well as the various definition of high-low and open-close range to use for context.

In this article, I have introduced some momentum indicators and review how to use them. To calculate the rate of change, you may take the closing price and subtract the closing price from 10 days ago. Repeat this process every day for a month you get an indicator.

The purpose of momentum measures is to identify the pace of market actions. The pace is fast during a sell-off as well as slows down when the price of shares reaches a new high or low. Momentum indicators compare the price of today with the price of x period ago. If the higher difference between price today with the price of x period ago then higher means a fast speed. The momentum analysis removes directional bias and shows only speed. A price that moves $3 from $13 ten days ago has the same momentum as the price that moves $5 from $15 ten days ago.

How to Calculate Momentum

The momentum indicator is generally done with respect to its price. In most charting platforms that will be the case, though some developers will design momentum indicators as they pertain to volume. However. as generally defined for purposes of this indicator, momentum is the change in an N-period simple moving average (SMA) over a specified period of time.

Momentum = SMA(now) – SMA(N-periods ago)

The longer the period, the smoother the indicator will appear.