Intraday Momentum Index: Guide to Timing the Market


It incorporates the distance of the security’s closing price relative to the high low range’s median, giving momentum traders a smoother ride view of the asset’s price closed relative to the recent range. The main purpose of using the IMI is to help traders identify potential buy and sell opportunities in the market. Traders are advised to use the IMI as part of a comprehensive trading strategy, confirm signals with other indicators, and understand the broader market context.

These indicators can provide additional insights into market momentum and potential overbought or oversold conditions. The Intraday Momentum Index (IMI) is a technical indicator that combines aspects of candlestick analysis with the relative strength index (RSI). Traders utilize this oscillator to gauge market sentiment and identify potential buy or sell signals within a trading day. Given its function, the IMI is best applied in conjunction with other technical indicators to confirm trends and signals. It is especially relevant in volatile markets where intraday price swings are significant.

  1. The raw %K value is also known as the fast stochastic, while the %D value is the slow-moving stochastic or the “signal line”.
  2. Meanwhile, a low IMI value (close to 0%) indicates strong downward momentum, suggesting that the market may be oversold.
  3. OI does not necessarily indicate a specific uptrend or downtrend, but it does provide indications about the strength of a particular trend.
  4. The close price represents the final trading price of the security at the end of the day, while the open price refers to the first traded price when the market opens.
  5. The chart above shows how oversold or overbought IMI readings can generate buy and sell trade signals on a popular index.

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It balances intraday price movements to provide a more nuanced view compared to traditional momentum indicators. This section compares the IMI to the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) to elucidate its distinct characteristics and applications. This technical indicator combines features of candlestick analysis with calculations similar to the relative strength index (RSI) to generate overbought or oversold signals. The Money Flow Index is a momentum indicator that combines price and volume data. The Intraday Momentum Index (IMI) is a technical analysis tool that combines elements of candlestick analysis with the Relative Strength Index (RSI).

Trading Volume Factor

When there is a strong visible uptrend or downtrend, momentum indicators will frequently show overbought/oversold readings. A price move outside of the bands can signal the security is ripe for a  reversal, and options traders can position themselves accordingly. For instance, after a breakout above the top band, the trader may initiate a long put or a short call position.

How Options Trading Is Different

The calculation involves comparing gains and losses over a specified number of periods to gauge the intensity of price changes. It is primarily used by traders to identify points where a security could reverse direction. In addition to the above-mentioned technical indicators, there are hundreds of other indicators that can be used for trading options (like stochastic oscillators, https://1investing.in/ average true range, and cumulative tick). On top of those, variations exist with smoothing techniques on resultant values, averaging principals and combinations of various indicators. An options trader should select the indicators best suited to his or her trading style and strategy, after carefully examining the mathematical dependencies and calculations.

One such way is to add a neutral zone in the oscillator area at the levels of +/-15. Changing the bar period is one way to smooth the fluctuation level in the stochastic oscillator. Another method to smooth out signals is changing the overall period or the %D in the stochastic oscillator settings.

Price Changes

Technical analysis, which uses technical indicators, examines the relationship between a security’s price and volume over varied periods of time. Indicators, such as the relative strength index and Bollinger bands, seek to generate buy and sell signals without examining a security’s fundamentals. As such, they are generally considered more useful for short-term traders than long-term investors. RSI values range from 0-100, with a value above 70 generally considered to indicate overbought levels, and a value below 30 indicating oversold levels. The Relative Strength Index (RSI) and stochastic indicators are two other technical analysis tools that traders may use alongside the IMI.

He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem. This code uses the rollapply function from the zoo package to calculate the rolling sums of gains and losses which needs to be loaded or installed. Interpreting the IMI involves understanding what the calculated percentage means.

Like all technical indicators, the IMI is not always 100% accurate and should be used in conjunction with other technical analysis tools to enhance trading decisions. In the era of algorithmic trading, coding technical indicators has become an essential skill. The IMI, despite its complex nature, intraday momentum index can be coded in popular trading languages like Python and R relatively easily. While the specifics of the code can vary, the core concept involves creating a function that calculates the gains and losses, sums them up over a specified period, and then calculates the IMI as a percentage.

Options on highly liquid, high-beta stocks make the best candidates for short-term trading based on RSI. The MACD is a trend-following momentum indicator that shows the relationship between two moving averages of a security’s price. The MACD is calculated by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA, which is different from how the IMI is derived. Traders often use the IMI in conjunction with moving averages to confirm trends and generate trade signals.

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Analysts use the IMI to identify overbought and oversold conditions as well as to predict the potential for a trend reversal. It is particularly useful for day traders who seek to capitalize on short-term market movements, making it a vital part of intraday trading strategies. It is most effective when used in conjunction with other indicators and analysis techniques to confirm signals.

Example Using the Intraday Momentum Index

A high IMI value (close to 100%) indicates strong upward momentum, suggesting that the market may be overbought. Meanwhile, a low IMI value (close to 0%) indicates strong downward momentum, suggesting that the market may be oversold. Once the gains and losses are calculated for each period, the total gains and total losses over the lookback period are calculated.

To set up the SMI indicator in TradingView, go to the “Indicators” tab, and search for stochastic momentum index. Daytrading, on the other hand, involves opening a position in any given market only to exit at the closing bell. SMI divergence occurs when the price makes higher highs (or lower lows, as the case may be), but the oscillator does not follow suit.

However, the IMI is specifically designed to analyze intraday price action, making it useful for short-term traders. The Intraday Momentum Index is a good technical indicator for high-frequency option traders looking to bet on intraday moves. It combines the concepts of intraday candlesticks and RSI, thereby providing a suitable range (similar to RSI) for intraday trading by indicating overbought and oversold levels. Investors use technical indicators to estimate when a security, such as a stock, should be bought or sold.

In essence, it provides investors with valuable insight into the intraday strength or weakness of a market, making it an essential tool in investment strategies. The Intraday Momentum Index (IMI) is an important technical analysis tool used by traders to gauge the momentum of a stock or market during trading hours. Created by Tushar Chande, a renowned technical analyst, the index combines elements of candlestick analysis with the relative strength index (RSI) to provide a comprehensive overview of intraday price movement. It oscillates between 0 and 100, signaling overbought or oversold conditions based on where the value falls on this range. The Intraday Momentum Index (IMI) is a technical indicator used by traders to identify market trends and buy/sell signals within a single trading day. It is calculated by comparing the close of each period to the high or low of the same period in order to measure asset’s velocity.

This script first downloads the past 5 days’ 15 minute periods data for Palantir. It then calculates the gains and losses for each period and uses these to calculate the IMI. Finally, it creates a 15 minute candlestick chart of the stock price and places the IMI on a panel beneath. You can execute it in VSCode by pressing the play icon in the top right of the software. Due to dependency on volume data, MFI is better suited to stock-based options trading (as opposed to index-based) and longer-duration trades.

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