Momentum of Average: Price-Change Signals and Filtered Momentum Options
Summary
The document defines momentum as the current closing price divided by its value N periods earlier, expressed as a percentage. It describes two common interpretations: trading turns in the indicator as trend-following signals, and treating divergence between momentum and price as a possible early warning of market tops or bottoms. It advises waiting for price confirmation and notes that extreme momentum readings can also accompany continued trends, making interpretation context-dependent.
The described variant adds optional price filtering using simple, exponential, smoothed, or linearly weighted averages. It offers coloring based on slope changes or crossings of the 100% level, plus dynamic upper and lower levels intended to mark significant or trend-changing zones. The text claims filtering can reduce signals, including false ones, with acceptable lag, but supplies no quantified tests or comparative results. The divergence approach is explicitly presented as a broad generalization rather than a dependable turning-point rule.
Key ideas
- Momentum compares the current close with the close from N periods earlier.
- Indicator turns can be used as trend-following signals, with price confirmation recommended.
- Momentum-price divergence may precede turning points but is not a reliable rule by itself.
- The variant supports four moving-average filters and several coloring modes.
- Dynamic levels add potential overbought, oversold, or trend-transition reference points.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.