Momentum & Trend

Momentum is the rate of acceleration of price or volume and trend is the direction of price movement.
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Momentum is the rate of acceleration of price or volume movement. In technical analysis, momentum is an indicator of strength or weakness in a security’s price.

Momentum and rate of change are measured in a variety of ways. Momentum indicators measure the difference between the current price and the price N periods ago.

The trend is the general direction of price movement and describes the slope of the price movement. A trend can be up, down, or level. Trend is the direction of price while momentum is the strength of the trend’s movement.

Time Series Analysis

Time series analysis describes the process of reviewing a series of data points to identify trends. Time series analysis may utilize statistical models or simple rate of change calculations. Time-series momentum describes the persistence of trends from one period to the next. Time series analysis seeks to identify and profit from the persistence of trends.

For example, if a security’s price trended up for one month, a momentum-oriented investor would expect the security to rise in price again the second month.

Breakouts

A breakout is a price movement through a level of significance on a price chart or indicator. A breakout is a rise above a resistance level or a drop below a level of support.

Breakouts are a continuation of price movements in a particular direction. The price levels of significance for a breakout are typically distinguished by trendlines or support and resistance lines.

Trendlines are drawn on charts in technical analysis to show the past direction of price and identify significant levels on a price or indicator chart. In uptrends, trendlines are drawn by connecting the lowest price points in a trading range. In downtrends, trendlines are drawn by connecting the highest points in a trading range.

Support lines are drawn at a level where price has previously been tested and reversed higher. Resistance lines are drawn at a level where price has previously tested and reversed lower. Price action is typically supported or rejected because buyers and sellers have placed orders at these key levels.

When price moves out of a trading range (i.e., price moves from below to above a downward trendline), this is referred to as a breakout. Breakouts can be traded across time frames (monthly, weekly, daily, intra-day) and in a variety of ways. Some strategies follow breakouts while other strategies fade breakouts in anticipation of a reversal into the previous trading range.

Support and Resistance with Breakout Visual Example
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FAQs

Why is time series analysis important?

Time series analysis describes the process of reviewing a series of data points to identify trends. Time-series momentum describes the persistence of trends from one period to the next. Time series analysis seeks to identify and profit from the persistence of trends.

For example, if a security’s price trended up for one month, a momentum-oriented investor would expect the security to rise in price again the next month.

What are the four main components of a time series?

Time series is made up of four components: seasonal, trend, cyclical, and random variations. Seasonal variations that demonstrate patterns within a defined timeframe. Trend variations that behave in a somewhat predictable pattern. Cyclical variations that typically coincide with the business cycle. Random variations that display no predictable patterns. 

How do you find a trend breakout?

A breakout is a price movement through a level of significance on a price chart or indicator. A breakout is a rise above a resistance level or a drop below a level of support. Breakouts are a continuation of price movements in a particular direction.

The price levels of significance for a breakout are typically distinguished by trendlines or support and resistance lines. Trendlines are drawn on charts in technical analysis to show the past direction of price and to identify significant levels on a price or indicator chart. In uptrends, trendlines are drawn by connecting the lowest price points in a trading range. In downtrends, trendlines are drawn by connecting the highest points in a trading range.

Support lines are drawn horizontally at a level where price has previously tested and reversed higher. Resistance lines are drawn horizontally at a level where price has previously tested and reversed lower. Price action is typically supported or rejected because buyers and sellers have placed orders at these key levels.

When price moves out of a trading range (i.e., price moves from below to above a downward trendline), this is referred to as a breakout.

How do you trade a trendline breakout?

Trendlines are drawn on charts in technical analysis to show the past direction of price and identify significant levels on a price or indicator chart.

In uptrends, trendlines are drawn by connecting the lowest price points in a trading range. In downtrends, trendlines are drawn by connecting the highest points in a trading range.

When price moves from below to above a downward trendline, or from above to below an upward trendline, this is referred to as a breakout. Traders who trade trendline breakouts will typically place orders above or below the trendline when price breaks out to follow price in the breakout direction.

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