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Trading and Investment Terminology

Momentum Indicator

A momentum indicator (oscillator) is a technical indicator that shows the trend direction and measures the pace of the price fluctuation by comparing current and past values. 

It is one of the leading indicators that measure the rate of change of securities. A momentum indicator is generally used in unison with other indicators.

 

Define

In the trading world, momentum refers to the level of aggressiveness in the market. When a stock is showing strong positive momentum, buyers are jumping over each other to buy.

 

Calculation Formulas

The momentum of a price is very easy to calculate. There are a couple of different versions of the formula, but whichever one is used, the momentum (M) is a comparison between the current closing price (CP) and a closing price "n" periods ago (CPN).1

 

You determine the value of "n."

M = CP – CPn

or

M = (CP / CPn) * 100

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