How is momentum calculated?

Momentum is calculated by measuring the difference between today's price and the price from a specified number of periods ago. This approach highlights the change in price over time and is often used to identify the strength of a trend. The calculation can be expressed as:

Momentum = Today's Price - Price n Periods Ago

This formula provides a raw measure of price movement, allowing traders and analysts to easily see whether a security's price is increasing or decreasing relative to a prior timeframe. A positive value indicates upward momentum, while a negative value suggests downward momentum.

Understanding this method is critical for technical analysis, as momentum can lead to insights about potential future price movements. It also assists traders in identifying potential entries or exits based on price strength or weakness.