Momentum (MOM)¶

The Momentum indicator measures the rate of change in prices over a specified time period. It's one of the simplest momentum indicators, showing the difference between the current price and the price N periods ago.

Usage¶

require 'sqa/tai'

prices = [44.34, 44.09, 44.15, 43.61, 44.33, 44.83,
          45.10, 45.42, 45.84, 46.08, 46.03, 46.41,
          46.22, 45.64, 46.21, 46.25]

# Calculate 10-period Momentum
mom = SQA::TAI.mom(prices, period: 10)

puts "Current Momentum: #{mom.last.round(2)}"

Parameters¶

Parameter	Type	Required	Default	Description
`prices`	Array	Yes	-	Array of price values
`period`	Integer	No	10	Lookback period

Returns¶

Returns an array of momentum values. The first period values will be nil.

Formula¶

Momentum = Current Price - Price N periods ago

Interpretation¶

Positive values: Upward momentum (price higher than N periods ago)
Negative values: Downward momentum (price lower than N periods ago)
Zero line: No momentum (price unchanged)
Increasing values: Momentum strengthening
Decreasing values: Momentum weakening

Example: Basic Momentum Strategy¶

prices = load_historical_prices('AAPL')

mom = SQA::TAI.mom(prices, period: 10)

current_mom = mom.last
previous_mom = mom[-2]

if current_mom > 0
  puts "Positive momentum: #{current_mom.round(2)}"
  if current_mom > previous_mom
    puts "Momentum increasing - trend strengthening"
  else
    puts "Momentum decreasing - trend weakening"
  end
elsif current_mom < 0
  puts "Negative momentum: #{current_mom.round(2)}"
  if current_mom < previous_mom
    puts "Momentum decreasing - downtrend strengthening"
  else
    puts "Momentum increasing - downtrend weakening"
  end
end

Example: Zero Line Crossovers¶

prices = load_historical_prices('TSLA')

mom = SQA::TAI.mom(prices, period: 14)

# Check for zero line crossovers
if mom[-2] < 0 && mom[-1] > 0
  puts "Momentum crossed above zero - Bullish signal"
  puts "Price now higher than 14 periods ago"
elsif mom[-2] > 0 && mom[-1] < 0
  puts "Momentum crossed below zero - Bearish signal"
  puts "Price now lower than 14 periods ago"
end

Example: Momentum Divergence¶

prices = load_historical_prices('MSFT')

mom = SQA::TAI.mom(prices, period: 10)

# Find recent price and momentum peaks
price_peak_1 = prices[-30..-15].max
price_peak_2 = prices[-14..-1].max

mom_peak_1_idx = prices[-30..-15].index(price_peak_1) - 30
mom_peak_2_idx = prices[-14..-1].index(price_peak_2) - 14

mom_peak_1 = mom[mom_peak_1_idx]
mom_peak_2 = mom[mom_peak_2_idx]

# Bearish divergence
if price_peak_2 > price_peak_1 && mom_peak_2 < mom_peak_1
  puts "Bearish Divergence!"
  puts "Price making higher highs but momentum making lower highs"
  puts "Potential trend reversal"
end

Example: Multi-Period Momentum¶

prices = load_historical_prices('NVDA')

# Different momentum periods
mom_5 = SQA::TAI.mom(prices, period: 5)
mom_10 = SQA::TAI.mom(prices, period: 10)
mom_20 = SQA::TAI.mom(prices, period: 20)

puts "5-period Momentum: #{mom_5.last.round(2)}"
puts "10-period Momentum: #{mom_10.last.round(2)}"
puts "20-period Momentum: #{mom_20.last.round(2)}"

# All positive = strong uptrend
if mom_5.last > 0 && mom_10.last > 0 && mom_20.last > 0
  puts "All momentum periods positive - Strong uptrend"
elsif mom_5.last < 0 && mom_10.last < 0 && mom_20.last < 0
  puts "All momentum periods negative - Strong downtrend"
else
  puts "Mixed momentum signals - Potential transition phase"
end

Example: Momentum with Moving Average¶

prices = load_historical_prices('GOOGL')

mom = SQA::TAI.mom(prices, period: 14)
mom_ma = SQA::TAI.sma(mom.compact, period: 10)

# Extend mom_ma with nils to match length
full_mom_ma = Array.new(mom.length - mom_ma.length, nil) + mom_ma

current_mom = mom.last
current_mom_ma = full_mom_ma.last

if current_mom > current_mom_ma
  puts "Momentum above its moving average - Bullish"
elsif current_mom < current_mom_ma
  puts "Momentum below its moving average - Bearish"
end

Trading Strategies¶

1. Zero Line Crossover¶

Buy when Momentum crosses above zero
Sell when Momentum crosses below zero
Simple trend-following approach

2. Momentum Peaks/Troughs¶

Sell when Momentum peaks and starts declining
Buy when Momentum bottoms and starts rising
Captures momentum shifts early

3. Divergence Trading¶

Bullish: Price lower low, Momentum higher low
Bearish: Price higher high, Momentum lower high
Signals potential reversals

4. Momentum Trend¶

Buy when Momentum is positive and rising
Sell when Momentum is negative and falling
Confirms trend strength

Common Period Settings¶

Period	Use Case
5	Very short-term, sensitive
10	Short-term trading
14	Standard setting
20	Medium-term trends
30+	Long-term analysis

Note: Array elements should be ordered from oldest to newest (chronological order)

Advantages¶

Simple and easy to understand
Clear buy/sell signals
Works well with other indicators
No overbought/oversold levels to interpret

Limitations¶

Can give false signals in choppy markets
No absolute overbought/oversold levels
Needs confirmation from other indicators
Raw values depend on price scale

Combining with Other Indicators¶

prices = load_historical_prices('AAPL')

mom = SQA::TAI.mom(prices, period: 12)
rsi = SQA::TAI.rsi(prices, period: 14)
sma_50 = SQA::TAI.sma(prices, period: 50)

current_price = prices.last

# Multiple confirmations
if mom.last > 0 &&              # Positive momentum
   rsi.last > 50 &&             # RSI above midline
   current_price > sma_50.last  # Above 50-day MA
  puts "Multiple indicators confirm uptrend - Strong BUY"
end

RSI - Normalized momentum
MACD - Smoothed momentum with signal
Stochastic - Momentum oscillator