Market Momentum

Market momentum refers to the speed at which prices are changing. The market momentum indicators are oscillators which help you aware of:

• The price extremes and divergences, and
• Reversals in a trend

When an oscillator reaches an extreme, it is said to be overbought or oversold. In reality, all that can be said is that the price is at an extreme compared to where it has been in the period over which the oscillators is being calculated.

Another important aspect is that, it is not only about absolute measurement of its value, but whether it is constant or changing. The key questions (to be answered from direct observation of the price-charts) are:

• Is the current price-move speeding up (in which case you want to stay with / get into it) or slowing down (in which case, consider taking a position against it)
• Is the current price-move faster or slower than the immediately preceding move in the opposite direction (expect the on-going trend to be in the direction of the faster of the two).

In strongly-trending markets, the indicator reading may stay at a high or low level for a long period of time. This is reflected in the current market sentiment.

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