Momentum¶
Momentum measures the rate at which a security's price is changing over a defined lookback period, distinct from direction alone. In physics terms, if price is position, momentum is velocity: a stock can be rising while its momentum decelerates, and that divergence often precedes a reversal. The concept applies both to individual indicator readings and to the academic cross-sectional factor, where recent winners tend to outperform for three to twelve months.
HOW IT WORKS¶
The simplest form is a raw price difference: Momentum = Close today − Close n periods ago. The normalized version, Rate of Change, expresses this as a percentage: ROC = ((Close today / Close n periods ago) − 1) × 100. A 14-period lookback is a common default. Most oscillators are refinements of this core calculation:
- RSI normalizes momentum into a 0–100 band by comparing average gains to average losses.
- MACD measures momentum as the spread between two exponential moving averages.
- Stochastic locates the close within the recent high-low range.
Momentum turns before price does. When price makes a new high but the momentum reading is lower than its prior peak, that is bearish divergence—a warning that the trend is losing fuel. The reverse, price stalling while momentum climbs, suggests sellers are losing control.
IN TAPEBOARD¶
Tapeboard's live scanner lets you rank the entire market by momentum characteristics in real time. Use 3-, 6-, or 12-month ROC columns to run cross-sectional momentum screens and concentrate on the top decile. For intraday work, filter by ROC on 5-minute bars alongside relative volume to distinguish names with genuine institutional participation from thin drift. Momentum readings also appear alongside price charts so divergence between the two is visible without switching views.