The purpose of this Market Call section is to educate readers in technical analysis patterns and indicators. As with all investment information, you need to research information and consult your financial advisor before initiating any strategies that are contained in Market Call.

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

This column tries to present historical examples, potential set ups, and examples of entry and exit strategies.

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

This column tries to present historical examples, potential set ups, and examples of entry and exit strategies.

Momentum

Let's look at the Momentum indicator used on our charts. 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. 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. Many technicians will also use it when it crosses from below the zero line for Buys and when it crosses from above to below for Sells. I also like to use it combined with channels and OBV (On Balance Volume)

Let's look at Lycos, LCOS.

For the past several weeks, LCOS has been in a steady decline and the momentum indicator has been below the zero line this entire time. On August 5, price, the momentum indicator and OBV reached a bottom on heavy volume. It is common the to seek peak volume at market tops and market bottoms.

>From August 5 through August 9, there was a slight improvement in price and OBV started to show a bottom. It is not unusual at bottoms to have another test to prove that a possible bottom has set in. The August 10 low was higher than the August 5 low.