In chart analysis, momentum is a concept for measuring the strength of a price movement. This is done by determining the price change within a given time period in various ways. Momentum is considered an indicator of the momentum of a price movement, measuring the speed or force or strength of a price movement.
Momentum is an important variable in technical analysis. The indicator provides information about the speed and force of price movements as well as trend reversals.
This phenomenon in price movement is sometimes compared to the flight of a thrown ball. The ball, which is thrown up, gradually slows down before changing direction and falling back down.
Calculation depending on the interval
The momentum is calculated from the formula (C / Cx) x 100, where C=the current closing price of the selected financial instrument or security. Cx=the closing price of the same financial instrument x days ago. The result is a curve called the momentum curve. The shape of this curve of depends on the selected period length. Among analysts, a setting of 20 days is common.
Interpretation and recommendations for action
The momentum curve can be interpreted like a chart. Reversal points in the lower part of the curve can be understood as buy signals. Accordingly, turning points in the upper area can be interpreted as sell signals.
If the momentum constantly fluctuates above the 100% line, this is referred to in the literature as an intact upward movement. Conversely, above the 100% line the downward movement is considered confirmed. In both cases mentioned, reaching an extreme position represents a signal for action. In the interpretation, this extreme position is defined by analysts, as no fixed value range is provided.
Particularly good signs are provided by divergences between the indicator line and the price movement, with the indicator running ahead of the prices. Pushing through the 100% line is perceived as a buy/sell signal in the United States, although this is sometimes questioned by European chartists.
If you want to use the indicator effectively in exness forex broker login, you should always adjust the length of the momentum period to your own trading habits. The longer the settings are chosen, the smoother the indicator and comparably cleaner divergences are formed.
When investigating with the help of the momentum, another possibility is to superimpose several variants of different long intervals and thereby generate different filters.
CCI (Commodity Channel Index)
The Commodity Channel Index was developed and published in 1980 by the economic journalist Donald Lambert. Initially, the indicator was used in the commodity futures market mainly to determine the beginning and end of commodity cycles.
Also for the analysis of shares
In practice, however, there is nothing to prevent the CCI from being applied to other securities as well. The Commodity Channel Index takes both momentum and price into account. The indicator works particularly well in sideways phases with a clear sideways trend channel - in the so-called trading zone.
The Commodity Channel Index is used to determine how far the price has moved away from a selected moving average. The indicator provides information on whether a trend is present. It is therefore a trend determination indicator. From this point of view, the statement of the index is similar to that of the Bollinger Bands.
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