Also, you must realize that as with all trading strategies, opinions can change quickly depending on market conditions and developments.

On the charts in this column everyday is the Momentum indicator. Some call it the Rate of Change indicator.

Definition: The Momentum indicator or Rate of Change indicator is a popular study available in most analytical charting programs.

The use of the indicator can vary from trader to trader. Most use it as a trend following indicator; while others use it as an oscillator to help pinpoint possible overbought and over sold conditions.

The indicator measures the rate of change in price as opposed to price itself. It is calculated by subtracting the price of x periods ago from the price now. This indicator can also be referred to as rate-of-change (ROC).

As with most indicators and studies, it can be used on various time frames. The same calculation is used for 5 minute, 15 minute, 60 minute or daily price bars. We use it here with 60-minute bars.

To reduce the choppiness of the indicator, I prefer a longer period. I then apply a Moving average of the indicator to further smooth this very volatile indicator when using with short time periods. The chart below reflects the smoothed 5 period exponential moving average derived from a 22 period Momentum indicator on 60-minute bars.

Interpretation:

The conventional interpretation is to use momentum as a trend-following indicator. This means that when the indicator peaks and begins to descend, it can be considered a sell signal. The opposite conditions can be interpreted when the indicator bottoms out and begins to rise.

If momentum reaches very high or low values relative to its range historically, a continuation of the current trend is likely, and a change might not be considered until the actual price begins to dip down or rise, respectively. As with all technical indicators, it is often useful to verify the signals you are interpreting with other indicators

Let's look at Lycos, Inc, LCOS

In mid May, the Momentum indicator in LCOS turned down. LCOS was 118 at the time. The major trend has been down since then.

There were a few rally attempts over the past month, but each one has been meet with new selling. Today, LCOS gave a new Momentum Sell signal.

The other indicators that we look at on these charts are also confirming this Momentum Sell signal. I am referring to the MACD and Moving average crossover methods.

As with all signals, conditions can change quickly. This is especially on days when major economic announcements come out. LCOS should open unchanged or down and continue lower.