Market Momentum

Market momentum is the capacity of a specific market to sustain an ongoing rise or fall in price over a predetermined period of time. In essence, a market trend is produced by market momentum. Since changes in an asset's market price are what cause changes in the market momentum, it also indicates how the market is feeling right now. Market momentum can therefore be employed in technical analysis (TA) to aid traders in locating trading opportunities. These opportunities may present themselves during pivotal times in bullish or bearish trends (when market momentum is strengthening) or during market reversals (when market momentum is weakening). Market momentum is correlated with both trade volume and price fluctuations, though. This means that a strong market trend and, consequently, a strong and more dependable market momentum are both indicated by considerable trading activity. Market momentum can be calculated or defined using the general equation: Market momentum = (current price) - (close price of past n days). As previously noted, TA indicators are frequently used by traders and chart analysts to assess market momentum and look for potential market trends. The Relative Strength Index (RSI), the Stochastic RSI, the Volume Weighted Average Price (VWAP), and the Moving Average Convergence Divergence (MACD) are a few examples of these tools. Additionally, unique indices have been developed to assess market momentum across various market sectors. Momentum indexes have been introduced by MSCI and FTSE Russell as the MSCI USA Momentum Index and the Russell 1000 Momentum Focused Factor Index, respectively.