Börsenlexikon: Momentum

The momentum is an essential oscillator in chart analysis and can be especially important in the cycle analysis of a chart. Mathematically, the momentum graphically represents a price change in relation to a predetermined time period. The magnitude and position of the indicator is used to determine the speed and direction of a trend. The clearly visible turning points of the momentum can be used as indicators to signal the waning of the trend intensity or, in the case of extreme swings, even point to a change in trend. Based on these signals, a speculator can improve his decisions by using them in addition to trend-following indicators to derive clearer buy or sell points for securities. Once a momentum trader sees an acceleration in a stock's price, earnings, or sales proceeds, the trader will often take a long or short position in the stock in hopes that its momentum will continue in either an upward or downward direction. This strategy relies on short-term price movements rather than fundamental details of companies and is not recommended for beginners.