Trading glossary
Momentum in trading measures the speed and strength of a price move, helping analysts gauge whether a trend is accelerating, stalling, or fading.
Momentum refers to the rate at which an asset's price is changing, capturing the speed and strength behind a move rather than just its direction. In technical analysis, strong momentum describes a market moving decisively, while weakening momentum suggests a move is losing energy. The concept borrows from physics, where momentum reflects how much force is carrying an object along.
Analysts measure momentum with dedicated indicators that compare current prices to prices from an earlier period. Tools such as the rate of change, the relative strength index, and the moving average convergence divergence are all used to quantify it. These indicators translate raw price data into readings that make shifts in pace easier to spot on a chart.
Traders often watch for divergence, where price and a momentum indicator move in opposite directions, as a possible sign that a trend is tiring. Rising momentum alongside rising price is generally read as agreement between the two. Momentum describes the character of a move, not its future path, and strong momentum can persist or fade without warning, so it is used as context alongside other tools.
A trend describes the overall direction of price, while momentum describes how fast and forcefully price is moving in that direction. A trend can continue even as momentum weakens, which is why traders watch both.
Common momentum indicators include the rate of change, the relative strength index, and the moving average convergence divergence. Each compares recent prices to earlier ones to express the pace of a move as a chart reading.