The Intraday Momentum Index (IMI) is a is a technical indicator that cross-breeds between the Relative Strength Index (RSI) and candlestick analysis. It was developed by Tushar Chande. It provides investors with potential buying and selling days based off of signals created on individual days. Investors are using this technical indicator to estimate when a stock should be bought or sold.
The calculation of the Intraday Momentum Index is very similar to the RSI. It uses the relationship between the intraday opening and closing prices to determine whether the day is “up” or “down”. In this indicator if the close is above the open, it is an up day and close is below the open it is a down day. This technical indicator can be attached to Zerodha Kite charts from the STUDIES section.
As shown in the image, the default parameter of IMI is 20 and you can also set the overbought and oversold levels. Intraday Momentum Index values above 70 indicate a potential overbought situation with lower prices ahead and values below 30 indicate a potential oversold situation with higher prices ahead. The investor will look at the Intraday Momentum Index over a period of days, with 20 days being the most common time frame to look at. In all overbought or oversold indicators, this indicator too should first quantify the trendiness of the market before acting on the signals.
IMI = 100 * (upsum / (upsum+downsum))
The Intraday Momentum Index’s basic premise is that shifts in intraday momentum lead shifts in interday momentum. The divergences between the indicator and the price action. In this, if the price trends higher (lower) and the Intraday Momentum Index trends lower (higher), then a reversal may be imminent.