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10.24 Momentum

Momentum and rate of change show a difference between today’s close and the close N days ago. Momentum is the difference as a price amount (positive or negative), rate of change scales it to a percentage increase or decrease from that N-day ago close. This scaling is an advantage if comparing past times when prices levels were much higher or lower than now. If p1 is today, p2 yesterday, etc, then

Momentum = p[1] - p[N+1]

            p[1] - p[N+1]
ROC = 100 * -------------
               p[N+1]

It will be noticed that momentum is the difference between an N-day simple moving average (see Simple Moving Average) for today and yesterday, with a scale factor N, ie.

Momentum
-------- = SMA[today] - SMA[yesterday]
   N

This is the slope of the SMA line (price change per day) at that point. Momentum crosses up through zero when SMA makes a peak, or down through zero when SMA makes a trough. The TRIX indicator (see TRIX) does a similar thing with a triple exponential moving average.

10.24.1 Additional Resources


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