V.16:2 (89-98): Anchored Momentum by Rudy Stefenel

Anchored Momentum by Rudy Stefenel

A centered simple moving average can be used as a reference point when creating technical analysis indicators. Even though a centered simple moving average produces a plot much smoother than its related price plot, the centered moving average technique is generally ignored because it stops short by half of its period. However, some unique and effective momentum indicators can be anchored to a point on a centered simple moving average. Here are the benefits of anchored momentum.

Two points on a security price plot can be used to calculate ordinary momentum. A straight line drawn between these points is the momentum line. Figure 1 shows a 27-day centered simple moving average (purple) for the NASDAQ composite index with two different 13-day momentum lines. The ordinary momentum line is green; the anchored momentum line is red. Both end at the closing price on the last day, which is the end of the price plot.