Momentum Technical Analysis and Momentum Oscillator Signals

The momentum indicator uses math equations to calculate line of plotting. Momentum measures the velocity with which price changes. This is calculated as a difference between the current price candle and the average price of a chosen number of crude 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 start to slow down and return to a median level.

Momentum

Technical Analysis and How to Generate Signals

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

Zero Centerline Oil Cross Overs Trading Signals:

• A buy signal is generated when Momentum crosses above zero
• A sell 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 oil is overbought and a price correction is pending
• While readings below the oversold level the price is oversold and a crude trading price rally is pending.

Trend Line Break-outs:

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 signal while
• Bearish reversal - momentum readings breaking below an upward trend line warns of a possible bearish reversal signal.

Analysis in Oil Trading