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>Subject: Momentum - Leading or lagging
> Date: Sat, 17 Oct 1998 22:21:40 EDT
> From: CRLeBeau@xxxxxxx
> To: trade_jack@xxxxxxxxx, mgj@xxxxxxxxxxxx, Omega-list@xxxxxxxxxx
>
>In a message dated 10/15/98 9:26:54 AM, trade_jack@xxxxxxxxx writes:
>
><<but why do many authors, including Kaufman, Blau, even Chuck LeBeau
>(in his book), claim that momentum (and indirectly acceleration) are
>"leading" indicators? bob fulks also argued that under some
>conditions, momentum can be a "leading" indicator, as well as a
>"lagging" indicator. and isn't your "vel" thingy a "coincident
>indicator."
>
>what am i missing here? is it just a question of semantics and all
>indicators are lagging, or some lag less than others?
>>>
>
>I think the reason that momentum is sometimes considered to be a leading
>indicator is that it often changes direction in advance of price while other
>oscillators merely follow the direction of price. This characteristic of
>momentum makes it a lead indicator in its application. I would certainly
>agree with anyone who wanted to argue that mathematically it is not a lead
>indicator but if it serves this purpose (and many claim that it does) who
>cares.
>
>There obviously are no true lead indicators. Wish there were.
>
>Chuck
>http://traderclub.com/
The reason momentum may seem to lead price is because it is a
length-based indicator. If a significant event (i.e, price movement)
occurred "length" bars back, when it suddenly is no longer in the series
then there is a great change in the indicator even though the current
price DID NOT change.
For example, a stock has a steep decline. There is a strong rally (say
30% retracement), followed by a long slow decline. During the slow
decline the price will be greater than the end of the steep decline.
The momentum will be positive. But the stock is likely still going
down. If the stock DOES recover, then the momentum appeared to lead
the price increase. But if the length used was longer or shorter, then
them momentum would have been negative. Or positive sooner, such as at
the peak of the rally. BUY! BUY!
Momentum is a simple indicator, a subtraction. Therefore the earliest
price in the series has as much effect as the last. Not too swift.
Most length-based indicators have this problem. Multiple-time-frame
indicators may help overcome this problem.
donc
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