Momentum and Rate-Of-Change oscillators are technical tools that behave essentially the same.

Each are single line studies that show current price action and weakness or strength in comparison to its own recent value.

Plotted below are standard 12-period settings within daily and hourly charts. This shows current market sentiment versus that which occurred 12 days or 12 hours prior, respectively.

This information can be used to determine future price movement through direct and indirect indicator/underlying relationship.

Each study has a "zero" value line and zones above & below. Indicator lines rising above the zero value show increasing price strength on building momentum.

Indicator lines falling below zero value indicate price weakness on building momentum as well.

Indicator lines reaching the top or bottom of extreme zones show considerable overbought/oversold conditions exist. These lines reversing from extreme positions may signal a change in sentiment and market direction.

Divergence between price action and Momentum/ROC lines are also strong signals of near-term price reversal.

Let's examine actual examples below:

(Daily Chart, NDX)

The NASDAQ 100 index fell to recent lows in late May while ROC values did not. Notice how the ROC extreme low was greater in mid-April than late May. This crystal-clear divergence together with a rise from oversold across the zero line, was strong indication a near-term price increase was probable.

By the same token, mid-July's price peak in the market was greater than the previous at mid-June but the ROC line didn't follow suit. In fact it was in a steep decline even as NDX levels advanced, clear warning that the rally might not last.

Not shown is a slight divergence setup again. ROC values are ever so higher now than the last previous high but index price levels are not even close. This divergence could mean market failure for the index near-term as the indicator once again points down.

(Daily Chart, HIFN)

HIFN is one of the NASDAQ stocks that followed the major index pattern in sympathy. Had we checked on the NDX and COMPX before scanning for prospective plays, it could have alerted us to an excellent entry point and warned to protect or go short later on.

Where would you have bought, sold or stood aside based on the chart study above?

(Hourly Chart, JDSU)

Momentum/ROC studies can help pinpoint sound entry points on short-term charts as well. Recent price action in JDSU was a series of uptrends, so we wait for buy signals on oversold line reversals.

Based upon this study alone, how would we have gone about entering this market on short-term oversold signals alone? Coupled with a few of your other favorite tools, would this help?

(Hourly Chart, PDLI)

Here's a clean chart for us to examine. PDLI is in no clear trend during the month of August. Do you see any tradable patterns emerge here?

What if we only bought each time the indicator was extremely oversold and sold or went short (if possible) at extreme over bought readings? Could we have taken a few profitable trades?

Unlike many oscillators which are lagging indicators, Momentum and ROC are leading indicators. Together in tandem with other tools they offer us a preview of current market behavior and divergence from the norm before it's reflected in the price.

Combining leading and lagging indicators can give traders a one-two punch that knocks out trade after winning trade.