Technical Studies: Momentum

The Momentum indicator measures the rate of change of a security's price over a specified time period. It is often used as a trend-following oscillator.

Technical analysts pay particular attention to Momentum tops and bottoms. In general, they buy when the indicator forms a bottom (trough) and turns up and they sell when the indicator forms a top (peak) and turns down.

The exception occurs when the momentum indicator reaches extreme highs or lows for that security compared to historical values. If the Momentum indicator reaches an extreme high and then turns down, this may indicate that prices will continue higher. Similarly, if the Momentum indicator reaches an extreme low and then turns up, this may indicate that prices will continue lower.

The default parameter for the Momentum study is the security's closing price over 12 periods (minutes/hours/days/weeks/months, based on the selected frequency). This figure can be customized.

Calculating Momentum: The value for n, below, is the number of periods specified in the study. By default, the number of periods is 12.
Momentum = [Closing price for current period / Closing price n periods ago] × 100