TECHNICAL ANALYSIS

“MOMENTUM”

Presented By:BSE 12

Momentum

• Momentum is  a  simple technical  analysis indicators  showing  the difference between current price & earlier price.

• When the Momentum indicator crosses above the zero line, it  is a bullish signal.

• When the Momentum indicator crosses below the zero line, it  is a bearish signal.

Bullish

Signal

Bearish

Signal

Momentum Indicators

• Moving Average• Moving  Average  Convergence  Divergence (MACD)

• Rate of Change (ROC)• Relative Strength Index (RSI) • Stochastic oscillators• Williams %R 

Moving Average

• The two most popular types of moving averages are:• The Simple Moving Average (SMA) -  the  average (mean) price of a security over a specified number of periods;

• The Exponential Moving Average (EMA)applies  to weighing  factors  to  reduce  the  lag  in  simple moving averages.

Bulli

sh

Bearish

Bullish 

Bearish Double bottoms

Moving Average Convergence & Divergence (MACD)

• MACD was developed by Gerald Appel as a way to keep track of a moving average crossover system.

• MACD is the difference between a 12-day and 26-day moving average. A 9-day moving average of this difference is used to generate signals.

• When this signal line goes from negative to positive, a buy signal is generated.

• When the signal line goes from positive to negative, a sell signal is generated.

Buy SignalSell Signal

Rate of Change (ROC)

• The Rate of Change (ROC) is a simple technical  indicator that shows  the  percentage  difference  between  the  current  price and the price n periods ago.

• Rate of Change (ROC) = Current Price - Earlier Price ──────────────── X100

Earlier Price• The higher ROC is considered a more overbought security and 

the lower ROC is a more oversold security.

Overbought

Oversold

Cup

Handle

Relative Strength Index (RSI)• RSI  was  developed  by  Welles  Wilder  as  an  oscillator  to  gauge 

overbought/oversold levels. • It compares the stock's gains over its losses over a specific period of 

time, usually 14 trading days• To calculate

– Sum the negative changes and positive changes and divide each by 14 to create (D) down average and (U) up average

– RSI=U/(U+D) * 100• If RSI > 70

– Market is thought to be over bought, &• If RSI < 30

– Market is thought to be over sold

Oversold

Overbought

Oversold

Bullish

Bearish

Stochastic Oscillator• The  Stochastic  Oscillator  was  developed  by  George Lane  in  the 

1950s. 

• The Stochastic Oscillator is based upon the theory that prices move in waves, moving back and forth between an overbought level and an oversold level (even within strong trends). 

• The  Stochastic  Oscillator  is  usually  displayed  as  a  stochastic  line, and a signal line which is a moving average of the stochastic line.

• Stochastic Oscillator (%K) = Close Price - Lowest Low ─────────────── x 100

Highest High - Lowest Low

Cups

Handle

Williams %R• Williams  %R  was  developed  by  Larry  Williams  to  indicate 

overbought and oversold levels. 

• The indicator is very similar to Stochastic %K.

• %R varies from 0 to -100, while %K varies from 0 to 100

• Values  between  (0  and  -20)  are  considered  to  indicate  an overbought condition, whereas readings in the (-80 and -100) range indicate an oversold condition

• Williams %R = Highest High – Close Price ──────────────── x 100 Highest High – Lowest Low

Overbought Oversold

Triple Exponential Average Indicator (TRIX)

• TRIX was developed by Jack Huton.

• The TRIX is a momentum indicator, that is displayed as an oscillator above and below a zero line. 

• A positive TRIX value indicates an overbought condition, whereas a negative value indicates an oversold market. 

• A positive value would suggest that momentum is increasing while a negative  value  would  suggest  that  momentum  is  decreasing.

Overbought

Oversold

Overbought

Oversold

Neckline

Right shoulder

HeadLeft shoulder