Do Momentum Indicators Follow Trends? by Clive Roffey, Ph.D.
Do momentum indicators follow trends, or
are they independent of them?
The stochastic oscillator, relative
strength index (RSI), rate
of change (ROC), and moving
divergence (MACD) are
some of the most commonly
used indicators. It’s not surprising to find
traders lumping them all together into the
generic category of “momentum indicatorsY´.”
Although each indicator is recognized as having
its own distinctive characteristics, it is
often assumed, misleadingly, that they can be
interpreted in a similar fashion.
For example, when you extend the time
frame of the rate of change indicator, its
oscillation amplitude increases. But when you
extend the time frame of its cousin, the RSI,
the opposite happens: The amplitude decreases.
This occurs to the extent that the
accepted 70/30 overbought and oversold levels
of the RSI have to be contracted to 60/40.