Intraday Momentum Index: Overview, Formula, Examples

What is the Intraday Momentum Index (IMI)?

The Intraday Momentum Index (IMI), is a technical indicator that combines aspects of candlestick analysis with the Relative Strength Index (RSI) to generate overbought or oversold signals.

The intraday indicator was developed by market technician Tushar Chande to help investors with their trading decisions.

Understanding the Intraday Momentum Index (IMI)

Investors use technical indicators to estimate when a security, such as a stock, should be bought or sold. Technical analysis, which uses technical indicators, examines the relationship between a security’s price and volume over different time periods. Indicators, such as the relative strength index and Bollinger bands, attempt 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.

The IMI looks at the relationship between a security’s open and close price throughout the day, rather than how the open/close price varies between days. It combines some features of the relative strength index, namely the ratio between “up closes” and “down closes” and whether there is an indication that a stock is overbought or oversold, with candlestick charts. Candlestick charts for a given day contain a “real body” that highlights the gap between the open and close price, and price points above the high and low called upper and lower shadows.

The formula for IMI

IMI = ( ∑ d = 1 n Profits ∑ d = 1 n Profits + ∑ d = 1 n Losses ) × 100 where: Profits = CP − UP, up Open Days – ie Close > Open CP = Closing price UP = Opening price Losses = UP − CP, on Down Days – ie Open < Close d = Days n = Aantal dae (14 is tipies) \begin{aligned} &\text{IMI} = \left ( \frac{ \sum_{d=1 }^{n} \text{Gains} }{ \sum_{d=1}^{n} \text{Gains} + \sum_{d=1}^{n} \text{Losses} } \right ) \ keer 100 \\ &\textbf{waar:} \\ &\text{Gains} = \text{CP} - \text{OP, op Up Days -- di Close} > \text{Open} \\ &\text {CP} = \text{Closing Price} \\ &\text{OP} = \text{Opening Price} \\ &\text{Losses} = \text{OP} – \text {CP, on Days — ie Open} < \text{Close} \\ &d = \text{Days} ​​\\ &n = \text{Number of days (14 is typical)} \\ \end{align} ,IMI=(∑d=1a,Profits+∑d=1a,Losses∑d=1a,Profits,)x100where:Profits=CP−UP, on Up Days – ie Close>Open upCP=Closing priceON=Opening priceLosses=ON−CP, on Down Days – ie Open<Neard=Daysa=Number of days (14 is typical),

The IMI is calculated as the sum of gains on up days divided by the sum of gains on up days plus the sum of losses on off days. This is then multiplied by 100. If the resulting number is greater than 70, the security is considered overbought, while a reading of less than 30 indicates that a security is oversold. The investor will look at the IMI over a period of days, with 14 days being the most common time frame to look at.

Example using the Intraday Momentum Index

Let’s look at the Intraday Momentum Index applied to the SPDR S&P 500 ETF (SPY):

The chart above shows how oversold or overbought IMI readings can generate buy and sell trading signals on a popular index. Although these signals are not always accurate, they can provide a greater degree of accuracy than simply using the RSI. Many traders combine these insights with other forms of technical analysis to maximize their chances of a successful trade. For example, they can look for oversold conditions and a breakout of a chart pattern before entering a long position.