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