What are momentum indicators?

By Research Desk
about 4 years ago

The word above sounds confusing at once, but after a careful observation, it basically means that they are a few characteristics indicating stocks that have had a considerable amount of directional price movement.

In the share market world, one always wants to know what the other is buying/selling in order to gain from it, similar to the 'herding effect' in which one follows the other and as a result a crowd of people act the same on a certain stock.

Shares of companies on BSE / NSE that have already garnered a bit of price activity are seen by many as an opportunity and they often place their bets on them to profit from it. This is known as momentum trading. A few momentum indicators like top gainers, top losers, 52 week high, 52 week low, moving averages are some of the key ones to find stock on everybody's radar.

'Top gainers' comprise of the stocks that have had the highest percentage increase in price for the day, whereas 'top losers' comprise of the stocks that have fell by maximum percentage for the day. These two indicators are always shown on the stock exchange website. They are shown with a company's name, its closing price, the change in closing price with the opening price in number and in percentage.

The factors that determine a 'top gainer' can vary from being a fundamental streak in the company (e.g. announcement of expansion plans, positive quarterly numbers) to just being a market sentiment for that particular day. One needs to be careful and judge the stocks in terms of all the factors and then take a call on it rather than jumping to buy it.

'52 week high' and '52 week low' again can be misleading if viewed in isolation. A stock price going to 52 week high may be due to a fundamental factor which may be a good sign or may be due to speculative buying from informed circles, in which case you need to be cautious so as not to get trapped in at higher prices.

Hence, always view all these factors together with other fundamentals and news around the stock to best benefit from these 'indicators'.

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