Momentum Indicators

The most commonly used momentum oscillators are:

Momentum has three weaknesses:

  1. Momentum tends to be erratic.
  2. Unusually high or low prices at the start of the indicator window (e.g. 14 days ago on a 14 day indicator) cause distortion. This is shown in more detail in Momentum.
  3. It does not fluctuate between set limits, meaning that Overbought and Oversold levels have to be re-set for each stock;.

Rate of Change fluctuates as a percentage around the zero line, but the indicator still suffers from the first two weaknesses.

Colin Twiggs developed the Twiggs® Momentum Oscillator to address these weaknesses, providing smoother and more reliable signals.

RSI is also smoother and not as susceptible to distortion. It fluctuates between 0 and 100, providing consistent overbought and oversold signals.

Stochastic indicator compares closing price to the price range (High minus Low) for the window period. This is an improvement on the above three indicators which measure relative changes in closing price. Stochastic movements can be erratic and many analysts use the internally-smoothed Slow Stochastic indicator, which they find more reliable.

Types of Momentum Indicators

Closing Price relative to previous Closing Price

Closing Price relative to Range

Closing price compared to Moving Average

Closing Price relative to High/Low

High/Low compared to Moving Average

Moving Average Oscillators

Range relative to Previous Range

Range relative to absolute Price Movement