Momentum Indicators
ROC, TRIX, APO, PPO -- measuring the speed of price change and spotting divergences.
What are Momentum Indicators?
Momentum indicators measure the speed of price change -- how fast the price is moving, not just which direction. A stock can be in an uptrend but with slowing momentum (the price is still going up, but each rally is smaller than the last). Or momentum can surge while the price is still near a support level, hinting that a move is building.
This distinction between direction and speed is what makes momentum indicators different from trend indicators. A trend indicator tells you which way the price is going. A momentum indicator tells you whether that move is accelerating or decelerating.
The Key Concept: Divergence
The most powerful signal from momentum indicators is divergence -- when the price moves in one direction but the momentum indicator moves in the opposite direction. This disagreement signals that the current trend may be running out of fuel.
Bearish divergence: the price makes a higher high, but the momentum indicator makes a lower high. Each rally covers less ground in the same number of candles -- the trend is losing steam.
Bullish divergence: the price makes a lower low, but the momentum indicator makes a higher low. Each selloff is weaker than the last -- selling pressure is fading.
Divergence is not a timing signal -- it can persist for many candles before the trend actually reverses. It is a warning, not a trigger.
The Indicators
ROC Family (Rate of Change)
The simplest momentum calculation: how much has the price changed over the last N candles? Simula includes four variants that express the same idea in different formats.
MACD
MACD is categorized as a trend indicator in Simula's registry, but it is also a momentum tool. The MACD histogram specifically measures momentum -- the speed at which the MACD line is pulling away from or converging toward the signal line. When the histogram bars get shorter, momentum is fading.
APO and PPO
APO (Absolute Price Oscillator) is the difference between a fast moving average and a slow moving average, expressed in absolute price terms. By default it uses simple moving averages, so it is similar in spirit to -- but not the same as -- the MACD line without a signal line, which is built from EMAs.
PPO (Percentage Price Oscillator) is the same calculation expressed as a percentage: (fast moving average - slow moving average) / slow moving average * 100. This makes PPO comparable across assets at different price levels, just like NATR is the normalized version of ATR.
MOM (Momentum)
The raw price difference between the current close and the close N candles ago. No division, no percentage -- just the absolute change. MOM = close - close[N ago]. Positive means the price is higher than N candles ago; negative means it is lower. It is the simplest possible momentum reading.
TRIX
The 1-candle rate of change of a triple-smoothed EMA. By applying three layers of EMA smoothing before calculating the rate of change, TRIX filters out short-term noise and only responds to significant moves. It oscillates around zero and is one of the smoothest momentum indicators available.
BOP (Balance of Power)
Measures where the close falls relative to the open, normalized by the high-low range: (close - open) / (high - low). Values range from -1 to +1. Positive means buyers pushed the price up from the open; negative means sellers pushed it down. Unlike other momentum indicators, BOP looks at intra-candle positioning rather than candle-to-candle change.
Reference Table
| Indicator | Output | Center Line | Key Parameters |
|---|---|---|---|
| ROC | Percentage change | 0 | period (10) |
| ROCP | Decimal change | 0 | period (10) |
| ROCR | Price ratio | 1 | period (10) |
| ROCR100 | Ratio * 100 | 100 | period (10) |
| MOM | Absolute change | 0 | period (10) |
| APO | Absolute (price units) | 0 | fast (12), slow (26) |
| PPO | Percentage | 0 | fast (12), slow (26) |
| TRIX | Percentage (smoothed) | 0 | period (30) |
| BOP | -1 to +1 | 0 | none |
| MACD | Line + signal + histogram | 0 | fast (12), slow (26), signal (9) |
Common Mistakes
Using momentum as a directional signal
Positive ROC means the price is higher than N candles ago -- it does not mean the price is currently going up. The price could have spiked 8 candles ago and been drifting down since then, but ROC is still positive because the current price is above the reference point. Momentum indicators look backward over a window, not at the current candle.
Acting on divergence immediately
Divergence warns that momentum is fading, but it does not tell you when the reversal will happen. A trend can continue for many candles after divergence appears -- the divergence can even resolve without a reversal if momentum picks up again. Use divergence as context, not as a trade trigger.
Using momentum oscillators in a strong trend
In a strong uptrend, momentum indicators will stay elevated for extended periods. Treating every dip in momentum as a sell signal would cause repeated premature exits. Momentum oscillators work best for reversal signals in ranging markets. In trending markets, use them for pullback entries (buying when momentum temporarily dips within the trend) rather than reversal signals.
Where to Go Next
ROC (Rate of Change) -- the simplest momentum indicator, with all four variants explained.
MACD -- the most widely used momentum/trend hybrid indicator.
Oscillators -- RSI, Stochastic, and CCI, which overlap with momentum but focus on overbought/oversold conditions.
Trend Following -- strategies that use momentum to confirm trend entries.