What Is the Intraday Momentum Index (IMI)?
Let me explain the Intraday Momentum Index, or IMI, directly to you. It's a technical indicator that brings together candlestick analysis and the relative strength index (RSI) to create signals for overbought or oversold conditions.
This intraday indicator comes from market technician Tushar Chande, designed to help you make better trading decisions.
Key Takeaways
You should know that the IMI generates trading signals by using RSI alongside candlestick charting. It examines how a security's open and close prices relate within the day, not how they change from one day to the next. As a technical analyst, you can use the IMI to spot when a security might be overbought or oversold.
Understanding the Intraday Momentum Index (IMI)
Investors like you rely on technical indicators to figure out the right times to buy or sell a security, such as a stock. Technical analysis looks at the links between a security's price and volume across different time frames. Indicators like the RSI or Bollinger bands aim to produce buy and sell signals without digging into the security's fundamentals. That's why they're more suited for short-term traders than long-term investors.
With the IMI, you're looking at the open and close prices within the same day, not across days. It mixes RSI features—specifically the balance between up closes and down closes, and signs of overbought or oversold states—with candlestick charts. Those charts show a 'real body' for the gap between open and close, plus upper and lower shadows for the highs and lows.
Here's a tip for you: As a technical analyst, you can use the IMI to predict overbought or oversold conditions in a security.
The Formula for IMI
The formula for the IMI is straightforward: It's the sum of gains on up days divided by the sum of gains on up days plus the sum of losses on down days, all multiplied by 100. Gains are closing price minus opening price on days where close is greater than open. Losses are opening price minus closing price on days where open is greater than close. You typically calculate this over a number of days, with 14 being the standard.
How the IMI Works
When you calculate the IMI, if the result is over 70, the security is overbought. If it's under 30, it's oversold. You'll usually review this over 14 days.
Example Using the Intraday Momentum Index
Consider the IMI applied to the SPDR S&P 500 ETF (SPY). The chart would show how IMI readings for oversold or overbought states can trigger buy and sell signals on this index. These signals aren't always spot-on, but they might offer more accuracy than just the RSI alone. Many traders, including you perhaps, pair these with other technical analysis methods to improve success rates. For instance, you might wait for oversold conditions plus a breakout from a chart pattern before going long.
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