It is important to recognize that many traders view the RSI value of 50 to be a support and resistance benchmark. If an issue has a difficult time breaking through the 50-value level, the resistance may be too high at that particular time, and the price action may fall off again until there is enough volume to break through and continue on to new levels. An issue falling in price may find support at the 50 value and bounce off this level again to continue an upward rise in price action.
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What Are Momentum Indicators?
Momentrum indicators are technical analysis tools used to determine the strength or weakness of a stock’s price. Momentum measures the rate of the rise or fall of stock prices. Common momentum indicators include the relative strength index (RSI) and moving average convergence divergence (MACD).
Understanding Momentum Indicators
Momentum measures the rate of the rise or fall in stock prices. From the standpoint of trending, momentum is a very useful indicator of strength or weakness in the issue’s price. History has shown us that momentum is far more useful during rising markets than during falling markets; the fact that markets rise more often than they fall…
Momentum as Volume
Momentum can be used as a measure of the volume of a market. If prices are changing rapidly (meaning that momentum is high), it’s likely that a large number of traders are buying or selling the asset to push the price change in either direction. Extremely high or extremely low values for momentum are taken as signs…
How to Calculate Momentum
The momentum of a price is very easy to calculate. The momentum (M) is a comparison between the current closing price (CP) and a closing price “n” periods ago (CPn). You determine the value of “n.”M = CP – CPn The Momentum indicator isn’t going to provide much information beyond what can be seen just…
RSI
The relative strength index was created by J. Welles Wilder Jr. in the late 1970s; his “New Concepts in Trading Systems” (1978) is now an investment-lit classic. On a chart, RSI assigns stocks a value between 0 and 100. Once these numbers are charted, analysts compare them against other factors, such as the undersold or underbought…