Momentum IndicatorsAs traders, we add momentum indicators to our charts to tell us if a stock or index has soared in price its “overbought zone,” or fallen in price to an “oversold” zone. Momentum indicators also give us valuable signals by forming “divergences” from price. Overbought: A stock or index is trading at a lofty price in comparison to its recent price activity. Oversold: As compared to recent price activity, a stock or index has fallen to a low price. Divergence: Price moves higher (or lower), while the indicator moves lower (or higher). When price and the corresponding momentum indicator move in opposite directions, it’s a “heads up.” Why? Because many times price will soon follow the direction of the indicator. Overbought, oversold, and price divergence signals can support our decisions to buy, sell and manage risk. Keep in mind that no one indicator can tell you for sure where price will move next—or for how long. That’s why we analyze signals displayed by additional charting tools, such as candlesticks, volume, and moving averages. Then, we combine them with momentum indicator signals to arrive at a buy, sell, or risk management decision. Although I discuss momentum indicators in my books, A Beginner’s Guide to Day Trading Online, 2nd Edition, A Beginner’s Guide to Short-Term Trading, 2nd Edition, and Short-Term Trading in the New Stock Market, I’ve added quick overviews of three additional momentum indicators above. They are the RSI (Relative Strength Index), CCI (Commodity Channel Index) and the plain vanilla, but effective, Momentum indicator. I trust this additional information will add value to your foundation of trading and investing knowledge! If you'd like to learn more, click here.  Secrets to Profiting with Exchange Traded Funds (3) DVD Set List Price: $299.00 Internet Price: $199.00   Wealth-Building Strategies for Active Investors (3) DVD Set List Price: $299.00 Internet Price: $189.00 |
  
“Very insightful concepts.” — P. Lucia 
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