Things people are curious about Momentum Indicator. What is Momentum Indicator, how is it calculated and how is it interpreted?
What is Momentum Indicator?
Momentum indicator is an oscillator that shows the rate of change of prices in a certain period of time. In other words, it shows how much the stock has earned and lost in a certain period of time.
How is it calculated?
Momentum = Current closing price / Closing price “x” periods ago *100
Momentum value exceeding 100 reference values; reception signal; A decrease below 100 can be considered as a sell signal. However, the indicator in question, the momentum indicator, is a type of indicator that financiers have difficulty in interpreting. Because the price of any financial product is increasing does not guarantee that the prices will increase in the future. As we mentioned in the article “What is an Indicator?”, The trader must compare the different indicators and obtain the guesswork.
How is it interpreted?
Momentum Indicator can be interpreted in 2 different ways: trend monitoring indicator and future news indicator.
If it is used as a trend tracking tool, the decision to buy should be taken when the indicator turns down and turns upwards, and vice versa, when it turns up and turns downwards the decision to sell should be made.
If it is used as an indicator that informs the future, incompatibilities are used in technical analysis. To explain with a simple example; If prices are making new bottoms and indicator bottoms are rising, there is a “positive mismatch” here, which indicates that prices will go up.