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What is Earnings Momentum?

Earnings momentum is an indicator that is computed by not just looking at the earnings performance and estimations of a company, but looking at the positive or negative direction of earnings and the acceleration in that direction. Momentum in securities is much like momentum in physics. Where there is momentum, it is hard to slow things down and charge direction. Instead of looking only at the growth of earnings, which could be the slope of the inclining line, momentum also looks for increases in change to the growth rate, making earnings growth more parabolic or exponential. Continue reading...

What is market momentum?

Market momentum is the tendency of a trend to continue in one direction or another. Various analysis methods and indicators seek to identify the strength of trends and to find points of possible reversals and retracements. A market has strong momentum when trading volume is up and confirms the direction of price movement in the market. Bullish or bearish market sentiment will influence the degree of momentum that is present. Continue reading...

What is Momentum Investing?

Momentum investors usually have their own models for determining whether they think a price trend (to the upside or downside) is set to continue - sometimes it’s looking at a 3 month trend, sometimes a few weeks, sometimes even longer. The idea is that once a trend is established, an investor can buy into its continuance (if its an upward trend), or sell into (or sell short) if it is an established downward trend. Momentum investing is by no means a proven method, but sophisticated investors will try to use models to increase their probabilities of success. Continue reading...

What is a momentum trading system?

Momentum trading usually involves long positions in a security that has been experiencing an uptrend and has a high volume of trading, and dropping positions that have lost momentum. Several systems exist to help take the emotion out of trading and to stick to a theory with rules. Momentum trading is such a system, and it can be automated with help from algorithm. Some indicators that can be used are Rate of Change and Relative Strength Index. Some would identify high momentum as steady price increases bolstered by high trading volume. Continue reading...

How to use Momentum Indicators in trading

A momentum indicator allows for a quick comparison of a security’s current price relative to its past prices using a flexible time period, allowing traders to decide the parameters. The formula to calculate momentum is M = V – Vx (where V is the current price and Vx is the closing price from x number of days ago). A current price in excess of past price is a positive momentum indicator; a lower current price represents negative momentum. Continue reading...

Is there any merit to the momentum theories?

The momentum theory has many fans for its useful and relatively simple nature. The momentum theory basically states that markets which are moving either up or down for some period of time cannot suddenly reverse their course. Utilizing these strategies means jumping on a freight train, riding it for a short period of time, and jumping off before it stops and reverses direction. It is hard to argue with the this one, but it may be hard to find momentum strong enough for an investor’s taste in certain market environments, which might mean spending too much time on the sidelines, and due to the frequent active trading involved, the investor will incur fees and be susceptible to emotions and media hype. Continue reading...

What are the basics of technical analysis?

What does it mean to technically analyze a stock or other security? Technical analysis involves identifying price ranges, trend momentum, and points of possible reversals via graphical representations of the math behind price movements, examining information to the second or third derivative, and using trial-and-error with formulas. Geometry, calculus, physics, and finance all play a part in this methodology. Continue reading...

What is the commodity channel index (CCI)?

The Commodity Channel Index is an oscillator introduced in 1980 in Commodities magazine, but it can be used for indexes, ETFs, stocks, and so on. It basically displays the relative daily difference above or below a simple moving average. It can be used to identify overbought and oversold conditions and to confirm trends. The CCI averages out the prices of a commodity (or security) for a day, calling it the Typical Price, and compares it to the simple moving average for a time period (usually 20 days). Continue reading...

What does “Buy the Dips” Mean?

“Buying the dips” is a bullish description of investing in stocks whose prices have gone down. We say this is a bullish sentiment because a bearish investor would be more likely to interpret the downturn as a sign of impending doom, or might prefer to play it safe. A “dip” can be loosely defined as a downtrend without much momentum or evidence to support a bearish outlook. Another way of interpreting a dip would be as an oversold condition, where investor sentiment has caused the price of a quality stock to fall. Bullish investors could maximize their gains in such a scenario by buying low and selling when the stock has recovered and pushed on to new highs. Technical analysis indicators such as Bollinger Bands can be used to identify favorable buying conditions. Continue reading...

What are trading models?

Trading models are emotionless systems for decision-making in trading that can be automated or just used for reference. They tend to have logical parameters, such as “if x, then y” which can use popular trading indicators to implement a strategy that might only be used in certain conditions. Trading models are strategies employed with a specific design. Different trading models will use different technical indicators or types of charts to define and search for certain conditions in which a strategy can be used. Once the conditions are met, the model provides the decision-making logic that is intended to carry out a profitable trade without guesswork or emotion. Continue reading...

How to use the Accumulative Swing Index in trading?

The Accumulative Swing Index (ASI) is a trendline representing the running total of an oscillator called the Swing Index, first described by Webb Wilder in his book, “New Concepts in Technical Trading Systems.” The Swing Index itself compares the price data from the current period and the preceding period to quantify the positive or negative “swing,” which can be understood as a measure of directional velocity in a price. Continue reading...

How to use the Chaikin Oscillator in trading

The Chaikin Oscillator is a volume indicator that can help traders discern if price movements are verified by changes in trading volume. When there are discrepancies, it can mean that prices are exhibiting overbought or oversold conditions. Before the Chaikin Oscillator, On-Balance Volume was the most popular indicator for the job. On-Balance Volume (OBV) is a popular leading indicator introduced in the 1960s by Joe Granville. OBV is a line built using differences between daily trading volume – in Granville’s estimation, the major driver of market behavior – adding the difference on days that the market or stock moves up and subtracting the difference on days when the market or stock moves down. It looks for instances of rising volume that should correlate with price movement, but price movement has not occurred; additionally, OBV can be used to confirm lag. Continue reading...

What is swing trading?

Swing trading is active trading that is not frequent enough to be categorized as day-trading but generally follows short-term trends. Swing trading can describe long or short positions traded on upswings and downswings of a security or index, and these positions are generally held from one day to two weeks. Generally, these are going to be momentum investments which are entered into after there seems to be confirmation of a trend, and the positions are closed out when there seems to be confirmation that the trend has ended. Continue reading...

What is trend analysis?

Trend analysis is an attempt to explain market movements as general directional tendencies of various strength over various time frames. Trend analysis also works to predict future movements based on the probability of a trend continuing. The use of moving averages with support and resistance levels is the most commonly used methodology in trend analysis, and several trading strategies employ these tools in various ways. Trade volume, spreads, news, crossover points, and other market factors are also considered in the discipline. Continue reading...

How to use Stochastics in trading

Stochastic oscillators are a popular momentum indicator used in technical analysis and prized for their accuracy and clarity. They can provide overbought or oversold signals to traders and even be combined with other indicators, like moving averages or the Relative Strength Index (RSI), to unearth insights that support profit-maximizing trades. Stochastics gauge an asset’s closing price in comparison to a range (measured 0-100) of closing prices over a mutable (though most often 14-day) time period, creating overbought (readings of 80-plus) and oversold (readings of 20 or under) trading signals. Continue reading...

How to use the Aroon Indicators in trading?

The Aroon Indicators are a pair of momentum indicators – the Aroon Up value and Aroon Down value – named after the Sanskrit word for the first light of day. Each indicator represents a standardized value for the strength of the upward or downward pressure on a stock, which analysts can compare to determine if there is a trend emerging. Aroon looks at the latency between highs for certain rolling time periods, with 25 days being the standard time frame. Continue reading...

What Is Momentum Trading and How Does It Work?

Momentum trading, often described as "buy high, sell higher," is a trading strategy that seeks to capitalize on market volatility and price swings by purchasing securities that are in an uptrend and selling them before they lose momentum. While this approach may appear counterintuitive, it has gained popularity among traders due to its potential for significant short-term profits. In this article, we'll explore the concept of momentum trading, its underlying principles, and its benefits and drawbacks. Continue reading...

How Does Trading Divergence Enhance Momentum Understanding?

In the dynamic world of financial markets, understanding the mechanics of trends and momentum is crucial for traders looking to navigate the ebbs and flows of asset prices. Trends are not just a linear path of prices going up or down; they are characterized by a series of price swings, and momentum is a pivotal aspect of determining their strength and sustainability. Continue reading...

What is Momentum Trading and How Can Traders Leverage It for Profit?

Dive into the dynamic world of momentum trading with our insightful guide. Uncover the essence of momentum as a driving force in the markets and learn how to leverage it for potential gains. We'll introduce you to the critical tools that momentum traders rely on and discuss the inherent risks of this high-energy trading strategy. Whether you're a seasoned trader or new to the game, understanding momentum is key to navigating the financial markets with confidence. Get ready to harness the power of price movements and make informed decisions that could propel your trading to new heights. Continue reading...

Are Bullish Divergences and Bearish Reversal Signals Predicting Market Moves?

In the dynamic world of financial markets, traders are constantly on the lookout for any tools or indicators that can provide them with an edge in predicting market moves. Two such indicators, bullish divergences and bearish reversal signals, play a significant role in technical analysis. In this article, we'll delve into the intricacies of these signals and explore their potential to forecast market trends. Continue reading...

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