Momentum Commodities Analysis and Momentum Oscillator Trading Signals

The momentum indicator uses math equations to calculate line of plotting. Momentum measures velocity with which price changes. This is calculated as the difference between the current price candle and the average price of a chosen number of price bars ago.

Momentum represents the rate of change of the price over those specified time periods. The faster that prices rises, the bigger the increase in momentum. The faster that prices decline, the bigger the decrease in the momentum.

As the price movement starts slowing down the momentum will also begin to slow down & return to a median level.

Momentum

Commodity Analysis and How to Generate Trade Signals

This indicator is used to generate technical buy & sell commodity signals. The three most common methods of generating trading signals used in commodities trading are:

Zero Centerline Commodities Trading Cross Overs Trade Signals:

• A buy signal is generated when Momentum crosses above zero
• A sell commodity signal is generated when Momentum crosses below zero

Oversold/Overbought Levels:

Momentum is used as an overbought/oversold indicator, to identify potential overbought and oversold levels based on previous readings: the previous high or low of the momentum is used to determine the overbought & oversold levels.

• Readings above the overbought level mean the commodity instrument is overbought and a price correction is pending
• While readings below the over sold level the price is oversold & a trading price rally is pending.

Commodities Trend-Line Break-outs:

Commodities Trend lines can be drawn on the Momentum indicator connecting the peaks and troughs. Momentum begins to turn before price therefore making it a leading indicator.

• Bullish reversal - Momentum readings breaking above a downwards trendline warns of a possible bullish reversal commodity signal while
• Bearish reversal - momentum readings breaking below an upward commodity trend line warns of a possible bearish reversal trading signal.

Analysis in Commodities Trading