Momentum Indicator (MOM)
The Pure Speedometer That Measures Price Acceleration
The Momentum Indicator (MOM) is as straightforward as it gets: it simply subtracts the closing price N periods ago from today's close. No fancy smoothing, no ratios – just raw 'how far have we come?' It's the market's speed gauge, telling you if price is accelerating, cruising, or hitting the brakes. Plotted around a zero line, positive readings scream bullish thrust, negative ones shout bearish pressure. Simple, zero-lag, and incredibly effective for spotting surges, divergences, and when momentum is fading – the perfect no-nonsense tool for any trader's dashboard.
The Basic Math – Distance Traveled
Dead simple:
MOM = P_t - P_{t-N}
Where P is usually close price, N is look-back (10 or 14 common).
Positive = price higher than N bars ago → bullish momentum. Negative = lower → bearish. Steep rise/fall = acceleration.
Zero-lag on close-to-close – reacts instantly to new bars.
Popular Variations
Different flavors:
- Raw MOM: Pure distance – fastest, noisiest.
- Rate of Change (ROC): (P_t / P_{t-N} − 1) × 100 – percentage, asset-comparable.
- Smoothed MOM: EMA or SMA of raw MOM – calms whipsaws.
- Centered: MOM shifted to oscillate around moving average – reduces spikes.
Reading the Speedometer
Key signals:
- Cross above zero: Bullish impulse kicking in.
- Cross below zero: Bearish pressure building.
- MOM peaking while price rises: Divergence – momentum tiring, potential top.
- MOM trough rising while price falls: Bullish divergence – reversal brewing.
- Extreme spikes: Over-extension – expect pullback or consolidation.
Compare current extremes to historical percentiles for context.
Parameter Choices
N makes all the difference:
- Short (5–10): Ultra-responsive – scalping volatile instruments.
- Classic (10–14): Balanced daily swings.
- Longer (20–30): Smoother cycles – position trades, weekly charts.
Pro Trading Setups
Battle-tested ideas:
- Zero-line break: MOM >0 + price > 20-EMA → long; reverse for short.
- Divergence + pattern: Bullish divergence at support + engulfing candle → strong entry.
- Burst pullback: MOM hits 90th percentile → wait for 3-bar dip → join trend on resumption.
Always filter with trend tools – MOM shines brightest with direction context.
Smart Combinations
Pair for power:
- Trend filter: MA slope or ADX >25.
- Volume: Momentum spike + volume surge = conviction.
- Support/Resistance: Zero cross at key level = higher probability.
- ATR trailing: Use MOM extremes to tighten/widen stops.
Strengths and Realistic Limits
The Wins
- Intuitive distance/speed measure – easy to grasp.
- Zero lag on close – reacts instantly.
- Excellent divergence detector.
- Works across timeframes and assets.
The Gotchas
- Whipsaws in chop – raw version especially noisy.
- Ignores volume – false moves possible.
- Scale varies by asset (use ROC for comparability).
Your MOM Launch Checklist
- Choose raw MOM or ROC based on needs.
- Set N matching your trade horizon.
- Overlay zero line and percentile bands.
- Backtest zero crosses and divergences.
- Add trend/volume filters – never solo in ranges.
- Set alerts for extremes and crosses.
- Review when volatility changes.
Key Takeaways
MOM measures pure price distance traveled – your market speedometer.
Zero crosses flag momentum shifts; divergences spot exhaustion early.
Raw and fast – perfect for surges, pullbacks, and reversal warnings.
Filter with trend tools and volume – tames whipsaws beautifully.
Simple, powerful, timeless – keep an eye on the gauge and ride the real moves. Stay accelerated and trade strong!
Momentum Indicator (MOM)
The Pure Speedometer That Measures Price Acceleration
The Momentum Indicator (MOM) is as straightforward as it gets: it simply subtracts the closing price N periods ago from today's close. No fancy smoothing, no ratios – just raw 'how far have we come?' It's the market's speed gauge, telling you if price is accelerating, cruising, or hitting the brakes. Plotted around a zero line, positive readings scream bullish thrust, negative ones shout bearish pressure. Simple, zero-lag, and incredibly effective for spotting surges, divergences, and when momentum is fading – the perfect no-nonsense tool for any trader's dashboard.
Table of Contents
The Basic Math – Distance Traveled
Dead simple:
MOM = P_t - P_{t-N}
Where P is usually close price, N is look-back (10 or 14 common).
Positive = price higher than N bars ago → bullish momentum. Negative = lower → bearish. Steep rise/fall = acceleration.
Zero-lag on close-to-close – reacts instantly to new bars.
Popular Variations
Different flavors:
- Raw MOM: Pure distance – fastest, noisiest.
- Rate of Change (ROC): (P_t / P_{t-N} − 1) × 100 – percentage, asset-comparable.
- Smoothed MOM: EMA or SMA of raw MOM – calms whipsaws.
- Centered: MOM shifted to oscillate around moving average – reduces spikes.
Reading the Speedometer
Key signals:
- Cross above zero: Bullish impulse kicking in.
- Cross below zero: Bearish pressure building.
- MOM peaking while price rises: Divergence – momentum tiring, potential top.
- MOM trough rising while price falls: Bullish divergence – reversal brewing.
- Extreme spikes: Over-extension – expect pullback or consolidation.
Compare current extremes to historical percentiles for context.
Parameter Choices
N makes all the difference:
- Short (5–10): Ultra-responsive – scalping volatile instruments.
- Classic (10–14): Balanced daily swings.
- Longer (20–30): Smoother cycles – position trades, weekly charts.
Pro Trading Setups
Battle-tested ideas:
- Zero-line break: MOM >0 + price > 20-EMA → long; reverse for short.
- Divergence + pattern: Bullish divergence at support + engulfing candle → strong entry.
- Burst pullback: MOM hits 90th percentile → wait for 3-bar dip → join trend on resumption.
Always filter with trend tools – MOM shines brightest with direction context.
Smart Combinations
Pair for power:
- Trend filter: MA slope or ADX >25.
- Volume: Momentum spike + volume surge = conviction.
- Support/Resistance: Zero cross at key level = higher probability.
- ATR trailing: Use MOM extremes to tighten/widen stops.
Strengths and Realistic Limits
The Wins
- Intuitive distance/speed measure – easy to grasp.
- Zero lag on close – reacts instantly.
- Excellent divergence detector.
- Works across timeframes and assets.
The Gotchas
- Whipsaws in chop – raw version especially noisy.
- Ignores volume – false moves possible.
- Scale varies by asset (use ROC for comparability).
Your MOM Launch Checklist
- Choose raw MOM or ROC based on needs.
- Set N matching your trade horizon.
- Overlay zero line and percentile bands.
- Backtest zero crosses and divergences.
- Add trend/volume filters – never solo in ranges.
- Set alerts for extremes and crosses.
- Review when volatility changes.
Key Takeaways
MOM measures pure price distance traveled – your market speedometer.
Zero crosses flag momentum shifts; divergences spot exhaustion early.
Raw and fast – perfect for surges, pullbacks, and reversal warnings.
Filter with trend tools and volume – tames whipsaws beautifully.
Simple, powerful, timeless – keep an eye on the gauge and ride the real moves. Stay accelerated and trade strong!
Related Terms
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