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Market momentum

Market momentum” refers to the tendency of an asset’s price to continue moving in the same direction as it has been moving in the recent past. It is a concept used in technical analysis and is based on the idea that if an asset’s price has been increasing, it is likely to keep increasing, and if it has been decreasing, it is likely to keep decreasing. This phenomenon is driven by investor psychology and market behavior, where rising prices attract more buyers, further pushing the prices up, and falling prices attract more sellers, pushing the prices down.

Key aspects of market momentum include:

  1. Trend Identification: Momentum indicators help traders identify the direction and strength of a market trend. Common momentum indicators include the Moving Average (MA), Exponential Moving Average (EMA), Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), Bollinger Bands, and the Volume-weighted average price (VWAP).
  2. Continuity of Trends: Market momentum suggests that trends tend to persist for some time due to the herd behavior of investors. Positive momentum indicates a bullish trend, while negative momentum indicates a bearish trend.
  3. Volume and Price Movement: Momentum is often stronger when accompanied by high trading volumes, as it indicates strong investor interest and participation in the market movement.
  4. Momentum Trading Strategies: Traders often use momentum strategies to enter trades in the direction of the current trend, expecting the trend to continue. This approach can be applied in various time frames, from short-term to long-term trading.

For a deeper understanding, you can refer to resources like Investopedia and other financial literature that explore the nuances of market momentum and its implications for trading strategies.