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What is Market Momentum?

Market momentum is the perceived strength of a positive or negative change in market prices.

How Does Market Momentum Work?

Market momentum is the ability of a market to sustain an increase or decrease in prices. Market momentum is a function of a price change during a specific period of time versus the trading volume during that period. In other words, high trading volume increases the market momentum of a price change and vice versa. For example, if the S&P 500 Index rises 100 between Monday and Tuesday in conjunction with heavy trading, the S&P is likely to sustain an upward trend in the days to come.

Why Does Market Momentum Matter?

In technical analysis, anticipatory indicator gives a signal in advance of other market action. Momentum indicators such as RSI or stochastics are anticipatory indicators that technical analysts believe can be used to predict changes in price.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.