V.11:1 (40-44): Momentum And The S&P 500 by Michael Oliver and Gary Esayian

V.11:1 (40-44): Momentum And The S&P 500 by Michael Oliver and Gary Esayian
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Momentum And The S&P 500 by Michael Oliver and Gary Esayian

As applied to market action, momentum is generally confined to some limited role such as measuring the relationship between moving averages. But momentum can be much more. Michael Oliver and Gary Esayian explain.

Momentum, the relative change in price over a specified time, can be used as a methodology of sorts for market analysis. Momentum provides a measure of insight that goes far beyond simple price confirmation. Price can be considered to be the veneer of a market, the side that is clearly visible to the public. Beneath the surface of a market, however, is the internal structure of market action the structure of momentum. Major shifts in price (whether those moves constitute trend reversals or resumption of the previous trends after consolidation) are first announced in momentum structure or a market's momentum dynamics. Momentum analysis seeks to evaluate market price by measuring momentum. A measurable momentum slowdown indicates that a market reversal is possible because the market players involved are beginning to have doubts. But momentum maintenance or acceleration evinces that the present trend can be sustained.

The study of momentum should not be seen as being primarily a trading "system"; rather, it is a systematic approach to understanding price action. Momentum analysis can be used for asset management or as an adjunct to other forms of asset management. As a supplement, it is particularly effective at tightening performance and reducing risk. It can be applied to commodities as well as equities.


Are the technical indicators we see so often indicators such as head and shoulder patterns, rectangular and trendline breakouts, moving average juxtapositions, to name only a few foolproof? Of course not; nothing ever is. How, then, does an asset manager or trader know or intuit when he is stepping into a losing situation? It is impossible to say. Thus, momentum can steer the black box trader as well as the pattern trader toward prudent, profitable behavior.

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