V.9:4 (158-159): Calculating Momentum A New Way by Darryl W. Maddox

V.9:4 (158-159): Calculating Momentum A New Way by Darryl W. Maddox
Item# \V09\C04\CALCULA.PDF
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Calculating Momentum A New Way by Darryl W. Maddox

Traditionally, the calculation of market momentum has been a difference calculation. Thus, a momentum indicator for the Dow Jones Industrial Average is calculated by subtracting the closing value on one date from the closing value on some later date and by doing so, momentum curves are constructed for various time frames ranging from a few days to a few months.

Calling the result of a difference calculation "momentum" has bothered me since I started to learn about the market. Having been trained in physics, I thought a momentum indicator should have two properties: First, it should be the result of a multiplication, and second, it should give some indication of the tendency that the market has to continue its current direction.

I calculate an indicator, which I called momentum, by keeping a 10-day moving average of the product of the daily change in the DJIA and daily volume. The calculation is easy and it fits my notion of what a momentum indicator should be.

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