What It Is
Momentum measures the rate of change in price — not just whether price is going up or down, but how fast. A stock rising $1/day has different momentum than one rising $5/day, even if both are in uptrends.
Key insight: Momentum precedes price. When momentum starts fading, price often follows — but with a lag. This lag creates the divergence signals that are among the most powerful tools in technical analysis.
Momentum is measured by indicators like RSI, MACD, Stochastic, and Rate of Change (ROC). Each measures momentum differently, but they all share the same principle: the speed of price change contains information that price alone doesn't reveal.
Trading With Momentum
In an uptrend with rising momentum, buy pullbacks. When momentum starts declining while price still rises, tighten stops and prepare for a potential reversal.
When price makes a new high but momentum makes a lower high, the move is weakening. This doesn't mean sell immediately — it means the trend is aging and the risk/reward for new longs is deteriorating.
Use multiple momentum indicators for confirmation. If RSI, MACD, and volume all agree, the signal is stronger than any single indicator alone.
Apply this concept in combination with others. No single concept tells the whole story - confluence is key.
Continue through core concepts
Compare this reference with related structures and readings before applying it to a live chart.