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Definition of 'Momentum'

Momentum is the tendency of an asset to continue moving in the same direction in which it has been moving. This can be applied to stocks, commodities, currencies, and other financial instruments. Momentum can be a powerful force in the markets, and it can be used to make profitable trades.

There are a few different ways to measure momentum. One common way is to use a moving average. A moving average is a line that is calculated by taking the average price of an asset over a certain period of time. The most common moving averages are the 50-day moving average and the 200-day moving average.

Another way to measure momentum is to use an oscillator. An oscillator is a technical indicator that measures the speed and magnitude of price changes. The most common oscillators are the Stochastic Oscillator and the Relative Strength Index (RSI).

Momentum can be used to trade in a number of ways. One common strategy is to buy an asset when it is oversold and sell it when it is overbought. Another strategy is to use momentum to identify potential trend reversals.

It is important to note that momentum is not always a reliable indicator. There are times when an asset will continue to move in the same direction even though the momentum is no longer in its favor. This is why it is important to use momentum in conjunction with other technical indicators and fundamental analysis.

Momentum is a powerful force in the markets, but it can also be dangerous. It is important to use momentum with caution and to understand the risks involved before using it to make trading decisions.

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