11. Momentum Indicators—The Exhaustion Point
Trends never last indefinitely. They slow down at some point and eventually begin moving sideways or reverse and go in the opposite direction. This exhaustion factor applies to all applications of statistics, including trend analysis.
Momentum provides strong indicators about the nature of a current trend and potential reversal or continuation. Whereas a price signal identifies direction of the trend, a momentum oscillator is a signal designed to measure that trend’s strength and speed. As a trend begins losing this momentum, a reversal is expected. This is especially true when the oscillator moves into an area of overbought or oversold condition.
These oscillators lead the price signals at times when ...