InvestorQ : As a trader in the stock markets, how do I use Momentum Oscillators to influence my trading decisions?
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As a trader in the stock markets, how do I use Momentum Oscillators to influence my trading decisions?

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2 years ago
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The Momentum Oscillator measures the amount that a security’s price has changed over a given period of time. The Momentum Oscillator is the current price divided by the price of a previous period, and the quotient is multiplied by 100. The result is an indicator that oscillates around 100. Values less than 100 indicate negative momentum, or decreasing price, and vice versa. If the Momentum Oscillator reaches extremely high or low values (relative to its historical values) you should assume a continuation of the current trend.

When the momentum line reaches the boundary levels it may indicate that the stock may be overbought or oversold. There is no upside or downside limits to the momentum oscillators considering that they are unbound indicators. This makes interpreting an overbought or oversold condition subjective. When the Momentum Oscillator is overbought the security can continue to move higher. When the Momentum indicator is oversold the security can continue lower as well.

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