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A momentum indicator is a technical analysis indicator that attempts to quantify the momentum of upward and downward price movements. Put another way, a momentum indicator tries to predict future market trends through the evaluation of recent price and volume data. Since momentum can be measured in different ways, one momentum indicator may use a different method than another momentum indicator. Typically, a momentum indicator compares a security's current price to the price a number of periods ago, representing a rate of change. One momentum indicator may express momentum as a ratio using the high, low and close values on various days. Some examples of a momentum indicator include the Relative Strength Index, Commodity Channel Index, Moving Average Convergence Divergence, and stochastics. A momentum indicator essentially allows a trader or analyst to see where the current price stands and to subsequently determine what strategy to use in trading. |
