Indicators  |  APR 2002

Do Momentum Indicators Follow Trends? by Clive Roffey, Ph.D.

Do Momentum Indicators Follow Trends? by Clive Roffey, Ph.D. Do momentum indicators follow trends, or are they independent of them? The stochastic oscillator, relative strength index (RSI), rate of change (ROC), and moving average convergence/ divergence (MACD) are some of the most commonly used indicators. It’s not surprising to find traders lumping them all together into the generic category of “momentum indicatorsY´.” Although each indicator is recognized as having its own distinctive characteristics, it is often assumed, misleadingly, that they can be interpreted in a similar fashion. For example, when you extend the time frame of the rate of change indicator, its oscillation amplitude increases. But when you extend the time frame of its cousin, the RSI, the opposite happens: The amplitude decreases. This occurs to the extent that the accepted 70/30 overbought and oversold levels of the RSI have to be contracted to 60/40.

by Clive Roffey, Ph.D.