Momentum moves Mountains
- By Trusha Desai
- •
- 26 Aug, 2015
- •
August 26, 2015
If you are into technical analysis (I recommend a hefty combo of fundamental as well as technical analysis) you will soon be familiar with oscillators. A favorite is momentum. I am not suggesting that of all the technical analysis tools, we should pick on momentum and move forwards. For momentum may be bearish or bullish.
For a day trader, a momentum swing signifies that there is going to be change in the stock price. For a grower, a momentum oscillation suggests that there could be a short-term move in the price of the stock. If the change is in the direction that you prefer (depending on whether you are long or short on the stock), you move in. For a buyer and holder, the momentum may only be as relevant as an attempt to buy low with an ultimate capital gain along with inherent capital growth.
If you are a physicist, or remember your high school science equations, then you will know that p = m x v, where p is momentum, m is mass and v is velocity. Therefore, an object with greater mass will attain greater momentum at the same velocity. Alternatively, an object with greater velocity, will attain greater momentum at the same mass. When both mass and velocity increase, momentum will increase at a greater rate.
Translated into your stock portfolio, I would assume that m is the stock price (book value). v is momentum as defined by your technical analysis. p will grow as momentum increases and you will eventually attain a capital gain (if that is your goal). Think of v in the investment context as the rate at which your stock price fluctuates or its volatility. A highly volatile stock may garner a momentous gain in a short period of time if you are willing to ride that roller coaster with blinkers on.
Please note that this is a theoretical descriptive analysis of only one of the technical indicators available in your tool box and should not be used to make stock purchase / sell decisions.
For a day trader, a momentum swing signifies that there is going to be change in the stock price. For a grower, a momentum oscillation suggests that there could be a short-term move in the price of the stock. If the change is in the direction that you prefer (depending on whether you are long or short on the stock), you move in. For a buyer and holder, the momentum may only be as relevant as an attempt to buy low with an ultimate capital gain along with inherent capital growth.
If you are a physicist, or remember your high school science equations, then you will know that p = m x v, where p is momentum, m is mass and v is velocity. Therefore, an object with greater mass will attain greater momentum at the same velocity. Alternatively, an object with greater velocity, will attain greater momentum at the same mass. When both mass and velocity increase, momentum will increase at a greater rate.
Translated into your stock portfolio, I would assume that m is the stock price (book value). v is momentum as defined by your technical analysis. p will grow as momentum increases and you will eventually attain a capital gain (if that is your goal). Think of v in the investment context as the rate at which your stock price fluctuates or its volatility. A highly volatile stock may garner a momentous gain in a short period of time if you are willing to ride that roller coaster with blinkers on.
Please note that this is a theoretical descriptive analysis of only one of the technical indicators available in your tool box and should not be used to make stock purchase / sell decisions.
When does your money double? If you do earn a high rate of return, please watch the tax implications of your investment.
When a stock price exhibits extreme volatility, we attempt to delineate the cause.
Straddles or a purchase of a stock prior to revenue announcement could be a risky strategy.
