Momentum in financial markets is a measure of the strength and persistence of price movement in a certain direction. Simply put, momentum tells you how fast (or strong) the price is moving over a specific period of time. Momentum can be upward (prices are rising quickly) or downward (prices are falling quickly).
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How do we measure momentum?
There are several technical indicators to measure momentum, the most famous of which are:
1. Momentum Indicator
Basic Formula:
Momentum = current price - price N periods ago
If the value is positive, the price is rising; if it's negative, the price is falling.
2. Relative Strength Index (RSI)
Measures the ratio of gains to losses over a certain period (usually 14 days).
Important levels:
Above 70 = Overbought (strong upward momentum that may reverse).
Below 30 = Oversold (strong downward momentum that may reverse).
3. MACD (Moving Average Convergence Divergence)
Measures the difference between two moving averages (usually 12 and 26 days).
The signal line and crossover provide momentum signals.
4. Stochastic Oscillator
Compares the current closing price to the highest and lowest prices over a certain period.
Used to identify reversal points and saturation areas.
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The impact of momentum on the market
Strong momentum = opportunity for trend continuation:
If momentum is strongly upward, the price is likely to continue rising, and vice versa.
Weak momentum = possibility of trend reversal or correction:
Weak momentum with a continuing trend may indicate that the market is 'fatiguing' and a correction or reversal could occur.
Divergence between momentum and price:
If the price is making new highs and momentum is not keeping up, this is an early signal of trend weakness and a potential reversal.
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Practical examples
If you see RSI at 80, it means the market is in an overbought condition with strong upward momentum, but a correction may happen soon.
If MACD crosses the signal line upwards, it indicates momentum
Upcoming upward.
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An example of the XRP/USDC currency for the day 2025/14 applying the concept of momentum using some famous indicators:
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Current price: 2.62 USDC
RSI Indicator (14): 66.97
MACD Indicator:
MACD line = 0.0009
DIF < DEA (MACD line below the signal line)
CCI = 211.32 (very high)
Williams %R = -23.27 (overbought)
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Analysis from a momentum perspective:
1. RSI at 66.97
This is close to the overbought level (70), indicating that upward momentum is strong.
But also, RSI nearing 70 means that the rise is beginning to lose momentum, and a correction may happen soon.
2. MACD
The value is positive, indicating that the upward trend is still in place.
But the presence of DIF below DEA indicates that upward momentum has begun to slow down, and the next crossover point should be watched.
3. CCI at 211.32
This is a very high number, indicating very strong upward momentum.
But also, this level is usually followed by a correction or slowdown in the trend.
4. Williams %R = -23.27
Close to -20, which is an overbought area.
The market is strongly bullish, but it may be at a temporary peak.
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Conclusion from momentum analysis:
The current trend is upward and strong momentum is present, but indicators show early warning signs of a potential end to momentum or an upcoming price correction.
Technically, it's better to:
Wait for a clear break of resistance level (like 2.6351) with confirmation from high trading volume.
Or wait for a correction to support areas (like 2.5583) to buy from lower levels after momentum weakens.
