Momentum SQ

Many of the best day traders in the world use momentum indicators and achieve outstanding results every year.

Momentum traders assume the broader stock market is right and stocks that have shown a recent pattern of upward or downward movement will continue their path. To summarize a well-known phrase among traders, “the trend is your friend.”

The advantage of momentum indicators is the fact that they work in all markets, and their simple use and easy duplicability. There plenty of many successful traders who have made or continue to make remarkable profits, thanks in part to these indicators.

In the following paragraphs, we will discuss the momentum indicator, including what it is, how to use, among other things.

What Is Momentum Indicator (Momentum SQ)?
The momentum indicator is a tool that traders use to determine the momentum that a financial instrument (stock, options, futures, currencies, etc) has when it is gaining or falling in the market.

Simply put, momentum indicator compares the current price with the previous price from a given number of periods ago.

Calculation
In his book Technical Analysis of the Financial Markets, former technical analyst for CNBC, John J. Murphy says that “market momentum is measured by continually taking price differences for a fixed time interval.”

Murphy goes on to say that to construct a 10-day momentum line, one simply need to “subtract the closing price 10 days ago from the last closing price. This positive or negative value is then plotted around a zero line.”

Therefore, while there are numerous charting software tools and trading platforms that traders can use to calculate momentum for a stock, the simplest calculation of momentum is as follows:

Momentum = (Current closing price)- (Closing price n periods ago)

Where:

n = the number of periods the trader selects

Important Momentum Indicators For Day Traders
While there are plenty of momentum indicators that you can use, we have picked a few that are widely used and very popular with day traders.