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Momentum Swing Indicator

18 Jul 202009:25 AM

Momentum Swing

The Momentum swing has over time become the go to indicator to capture the near term twists and turns in the Nifty over and over again. So I often get asked, what is Momentum swing? I publish this indicator daily in my ‘Nifty Daily’ report and it is a diffusion index.

A diffusion index is an indicator compiled by running a logic/calculation across stocks or a bunch of securities. For example how many stocks have an RSI>45 plotted daily. Or number of stocks above 200 plotted daily as a % of all listed stocks. You can take any indicator and measure the number or % of stocks that meet a technical parameter. The difficult part is that you have to plot it daily. So you have to run the algorithm or Filter daily and plot that result as an indicator. That’s it.

The process is manual [unless you are a techie and write out a code to run across securities], therefore most technical charting software and websites do not carry such indicators. So you either follow someone who does or put in the work to compile it yourself.

So again, what is the Momentum swing logic?

I use a momentum indicator to measure the daily momentum reading of a stock which you can see on most of my posts. Momentum is simply speed and can be erratic so I smooth it.

Now just like breadth indicators that measure advances v/s declines one day I decided to measure how many stocks were showing rising momentum and how many were showing falling momentum. Instead of running it on the entire market I ran this on the F&O list of stocks. That was anywhere from 150-300 stocks at any point of time [the list keeps changing based on market conditions].

So the daily swing plots % of stocks showing rising momentum out of the F&O list. I calculate and plot this every day in Metastock [charting software] and share it in my Nifty Daily report to Indiacharts Insiders subscribers. It looks like this.


The interpretation is simple readings above 80 are overbought and above 90 very overbought. Similarly below 20 oversold and below 10 very oversold. 1-2 day trend reversals often occur with these levels. Many of them as identified below are important highs and lows near term. You may also get negative and positive divergences at turning points in the market as identified using Elliott Waves. So it is a great confirmation tool. Simple? It is! except that you need to put in the work to plot it. You can get it every day in my daily report anyway once you sign up, so do not wait.

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