What is Momentum?

If momentum is applied to the market, there are many ways to understand such as Momentum is the strength of trend or momentum is a strong candle.

Traders often think of momentum in two directions. The first direction thinks price momentum is the strength of a trend, so when the trend is up, the Trader says: "The momentum of the market is bullish" and the opposite is the bearish momentum.

When we move down to a more micro level, we see the momentum also exists in each candle. A candle with a large body, without the shadow attached, is considered a high momentum candle. On the contrary, a baby candle with a long shadow or 2-headed candle ball is considered a low momentum candle.

We go into concrete examples with 3 examples of momentum cases below: (see the picture from left turn left).

  • A trend with momentum increases strongly but then momentum is reduced.
  • The chart has no momentum. Prices go up and down with no clear direction.
  • The market reversed from strong momentum to momentum and strong decline.

By comparing bullish, bearish candlesticks, and the strength of each candle you will begin to understand more about price behavior. However, in order to understand more closely about momentum, we cannot use price action alone. In the 3 examples in the figure, we see price interacts with Bollinger Bands and price momentum is lost. Price interacts with the 20 SMA and bounces off the SMA.

In other words, if you want to measure the momentum of prices accurately, use supportive tools to gain more perspectives on price behavior.

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