Momentum measures the rate of change in closing prices and is used to detect trend weakness and likely reversal points. It is often underrated because of its simplicity.

There are two basic ways to use Mometum:

1) You can use the Momentum indicator as a trend-following oscillator. Buy when the indicator bottoms and turns up and sell when the indicator peaks and turns down.

2) You can also use the Momentum indicator as a leading indicator. This method assumes that market tops are typically identified by a rapid price increase (when everyone expects prices to go higher) and that market bottoms typically end with rapid price declines (when everyone wants to get out).

To check if Momentum is trending up or down you can use the offset parameter. For example for trending up you can use:

Momentum(12,0) > Momentum(12,10)

This compares the last momentum value to the value 10 bars ago.

Versions

When the 'absolute' parameter is set to FALSE (the default) Momentum is calculated by dividing the last close price to the close price 'bars' ago. The value oscillates around 100 with higher values indicating stronger momentum.

When the 'absolute' parameter is set to TRUE Momentum is calculated by subtracting the close price 'bars' ago from the latest close. The value oscillates around 0 with higher values indicating stronger momentum. Note that stocks with higher prices will give higher readings, so using it this way is probably best suited when comparing stocks with similar close prices.