The Polychromatic Momentum system

Momentum-based indicators such as rate-of-change (ROC) appeal to traders because they can lead a change in the trend direction- that is, reverse before price reverses. By contrast, indicators such as moving averages smooth price action but lag trend changes, reversing after the price series has already done so. Momentum, which is the difference between the current close and a close a given number of bars ago, can change direction before the price peaks or troughs because the difference between closing prices often narrows (causing a momentum reversal) before the price trend changes direction. For example, for momentum to continue to rise, the difference between closes must continue to increase. If the close-to-close difference stays the same day after day, momentum will move sideways; if the daily close to close difference increases, but a smaller amount than the previous increase, momentum will decline.