Momentum (Rate-Of-Change/ROC)
Definition:
Momentum is a relatively straightforward indicator that measures the rate of change in price as opposed to price itself. It is calculated by subtracting the price of x periods ago from the price now. This indicator can also be referred to as rate-of-change (ROC). To reduce the choppiness of the indicator, the value given in most charting programs is a five-period exponential moving average of itself.
Interpretation:
The conventional interpretation is to use momentum as a trend-following indicator. This means that when the indicator peaks and begins to descend, it can be considered a sell signal. The opposite conditions can be interpreted when the indicator bottoms out and begins to rise. If momentum reaches very high or low values relative to its range historically, a continuation of the current trend is likely, and a change might not be considered until the actual price begins to dip down or rise, respectively.
