The momentum indicator is a leading indicator that measures a
securities rateofchange. In other words, it simply measures the amount a
security price has moved over a specific time period. This value is normally
expressed as a percentage. The ongoing plot forms an oscillator that moves above
and below 100.
CALCULATION
The momentum indicator takes the present value of the
selected data array (eg, the closing price) and divides this by the same data
array X number of periods ago. This is then multiplied by 100 to translate the
value into percentage terms. For example, if the closing price today was $1.20
and 10 days ago it was $1.05, then the value of today's 10 day momentum
indicator would be 114.28(%) (120/105 x 100).
The conventional interpretation is to use momentum as a
trendfollowing indicator. This means that when the indicator peaks and begins
to descend, it is considered to be a sell signal. Conversely, when the indicator
troughs and begins to rise, this is considered a buy signal. Bullish and bearish
interpretations are found by looking for divergences, centreline crossovers and
extreme readings.
SYNTAX Mo(Data Array, Periods)
Data Array _ This is the data array that the momentum will be
calculated on.
Periods _ This specifies how many periods are used to
calculate the change in the data array.
EXAMPLE
Here is an example of the momentum indicator:
Mo(C,12)
In the above example:
Data Array = C
Periods = 12
APPLICATION
A more useful application of this example could be:
Mo(C,12)<Ref(Mo(C,12),1) AND Ref(Mo(C,12),1)<
Ref(Mo(C,12),2) AND C>Ref(C,1) AND Ref(C,1)> Ref(C,2)
The formula above specifies that the value of the 12 period
Momentum indicator of the closing price has decreased over the last two periods
(denoted by `Mo(C,12)<Ref(Mo(C,12),1) and Ref(Mo(C,12),1)< Ref(Mo(C,12),2)')
but the closing price has increased over the last two periods (denoted by `C>Ref(C,1).
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