InvestorQ : Can we use momentum indicators in isolation to take a decision on what to trade long and what to trade short?
Niraja Mehta made post

Can we use momentum indicators in isolation to take a decision on what to trade long and what to trade short?

Answer
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Mary Joseph answered.
1 year ago


There is the basic difference between moving averages and momentum indicators. While momentum indicators only look at strength of the direction, the moving averages focus purely on the direction of the trend. That is why; momentum indicators in isolation cannot be very useful because they do not tell you anything about the direction of the stock or the index. Because momentum indicators generally only signal strong or weak price movement, but not trend direction, they are often combined with other technical analysis indicators as part of an overall trading strategy. A typical trader or chartist will use momentum of indicator as a secondary level ratification. Once the broad trend or the trend shift is established with the moving averages, the strength of the indicator can be used to either commit capital with greater confidence or to make a presentation to the investment committee about the merits of buying or selling a stock.