Intraday Momentum Index (IMI)
Candlefocus EditorThe IMI formula calculates the difference between the closing and opening price of a security for the trading day and divides the number by the open price of the security, giving a total percentage difference. The absolute value of this percentage difference is then charted across several days, allowing investors and traders to determine the trend of the security. In order to realign the IMI with the RSI, it is normalized using a nine-period smoothing mechanism.
By using the movement of the IMI, traders and investors can identify when a security is overbought or oversold. If the closing price is higher than the opening price, the IMI will move into positive territory and suggest that the security may be overbought. Conversely, if the IMI moves into negative territory, then it may be an indication that the security is oversold.
Similar to other technical indicators, the IMI should not be used in isolation as it can lead to false buy and sell signals in a wide range of market conditions. Additionally, the IMI may present lagging signals when the stock has already made a move, often leaving investors chasing the market, so it is wise to use this tool in combination with other methods of analysis.
Overall, the Intraday Momentum Index (IMI) can be a useful tool for anticipating possible turning points in the short-term. Technical analysts can utilize the IMI as a powerful tool to help ascertain when a security is overbought or oversold. However, it is important to remember that the IMI should not be used as a stand-alone strategy, but should be combined with other technical analysis tools and fundamental analysis to create a successful trading strategy.