What is Market Momentum?

Market momentum is the perceived strength of a positive or negative change in market prices.

How Does Market Momentum Work?

Market momentum is the ability of a market to sustain an increase or decrease in prices. Market momentum is a function of a price change during a specific period of time versus the trading volume during that period. In other words, high trading volume increases the market momentum of a price change and vice versa. For example, if the S&P 500 Index rises 100 between Monday and Tuesday in conjunction with heavy trading, the S&P is likely to sustain an upward trend in the days to come.

Why Does Market Momentum Matter?

In technical analysis, anticipatory indicator gives a signal in advance of other market action. Momentum indicators such as RSI or stochastics are anticipatory indicators that technical analysts believe can be used to predict changes in price.