Episode #12 - Tutorial in Technical Analysis by Alan Hull Febraury 15th, 2024

This it the final Alan Hull Tutorial on the topic. For more information please consider visiting Alan's website to learn more.

Momentum and the MACD indicator

Price momentum

One of the more esoteric aspects of charting is the concept of price momentum. Price momentum is essentially the rate at which price activity rises or falls. So if price activity is rising very fast then a chartist would say that it has a lot of upward momentum or if it were falling rapidly then it would have a lot of downward momentum. This all sounds reasonably simple but just to complicate things slightly, it’s the ‘rate of change’ of price momentum that chartists are actually interested in.

This is best explained with the help of a chart where we can apply two different moving averages and observe how they interact with each other. Take the following chart where I’ve applied both a 12 period and a 26 period exponential moving average. Of course the 12 period EMA is the black line which is sitting closest to the price activity. Now look at the distance between the two averages and how it increases as price activity accelerates...