Momentum Commodities Technical Analysis and Momentum Oscillator Trading Signals
The momentum indicator uses math equations to calculate line of plotting. Momentum measures velocity with which commodities price changes. This is calculated as the difference between the current commodities price candle and the average commodities price of a chosen number of commodities price bars ago.
Momentum represents the rate of change of the commodities price over those specified time periods. The faster that commodities prices rises, the bigger the increase in momentum. The faster that commodities prices decline, the bigger the decrease in the momentum.
As the commodities price movement starts slowing down the momentum will also start to slow down and return to a median level.
Momentum
Commodity Technical Analysis & How to Generate Trading Signals
This commodity indicator is used to generate technical buy & sell commodity signals. The three most common methods of generating trading signals used in commodities trading are:
Zero Centerline Commodities Trading Crossovers Commodity Trading Signals:
- A buy commodity signal is generated when Momentum crosses above zero
- A sell commodity signal is generated when Momentum crosses below zero
Oversold/Overbought Levels:
Momentum is used as an overbought/oversold indicator, to identify potential overbought and oversold levels based on previous readings: the previous high or low of the momentum is used to determine the overbought & oversold levels.
- Readings above the overbought level mean the commodity instrument is overbought and a commodities price correction is pending
- While readings below the over sold level the commodities price is oversold and a commodities trading price rally is pending.
Commodities Trend Line Break-outs:
Commodities Trend lines can be drawn on the Momentum indicator connecting the peaks and troughs. Momentum begins to turn before commodities price therefore making it a leading indicator.
- Bullish reversal - Momentum readings breaking above a downwards commodity trendline warns of a possible bullish reversal commodity signal while
- Bearish reversal - momentum readings breaking below an upward commodity trend line warns of a possible bearish reversal commodities trading signal.
Technical Analysis in Commodities Trading
