Understanding Momentum in Investment Technical Analysis

ebook Making Better Predictions Based on Price, Trend Strength, and Speed of Change

By Michael C. Thomsett

cover image of Understanding Momentum in Investment Technical Analysis

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This book explains and demonstrates the concept of momentum in chart analysis, which is of great interest to technical analysts.

It includes complete explanations of overbought and oversold, where momentum fits in the broader science of technical analysis, and the importance of moving average crossover. Five major momentum oscillators are explained in depth: relative strength index, MACD, rate of change, stochastics, and Bollinger Bands. Finally, the book provides trading guidance based on momentum, involving coordination of oscillators with other indicators, reversal, and continuation signals.

Momentum powerfully identifies the strength and speed of price movement. Through the use of index calculations, momentum is effective when used as a confirming indicator for other signals found in price, volume, or moving averages. Often overlooked by traders focused solely on price reversals or continuation signals, momentum provides a context to price behavior and to the price trend, and can vastly improves the timing of both entry and exit of trades.

Understanding Momentum in Investment Technical Analysis