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To: NasdaqMaster who wrote (23)10/2/2001 8:19:11 PM
From: John Busby   of 24
 
Momentum

NasdaqMaster --

I am by no means an expert myself, but I'd be happy to answer this question for you.

Personally, I don't use momentum too often. Those who do use momentum often use it for a couple of things:

1. Divergence/Confirmation -- If a stock is making new highs or new lows within a trend, some traders might look to see if the momentum indicator is also making a new high or new low and use the confirmation or divergence to help them decide if the trend is valid or may be reversing.

2. Peaks/Valleys -- Since momentum is generally considered a trend-following indicator, people may use a peak as a signal that an uptrend has finally ended or a valley to indicate that a downtrend may be reversing.

A few notes about IQ Chart's momentum:
- To reduce choppiness, the momentum indicator (which is calculated by subtracting the price of x periods ago from the price now) is a five-period exponential moving average of itself.

- It is important to be looking at the appropriate time frame when evaluating momentum. If you're studying a 7-9 period trend, then a 50-period momentum indicator might not be a big help. To edit the parameter, click on the "Utilities" menu and select "Parameter".

- Momentum should usually be used with other indicators when confirming trends.

John
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