| Momentum Indicators for High Probability Trading |
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| Written by Barry Taylor |
| Friday, 14 May 2010 18:41 |
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Momentum indicators hardly earn their fair share of the spot light for a trader's success, although they are one of the most popularly used indicators for technical analysts. Momentum indicators do exactly what their name implies: they track the momentum of the market and find opportunities for investors when the momentum is turning, beginning, or ending.
Momentum indicators hardly earn their fair share of the spot light for a trader's success, although they are one of the most popularly used indicators for technical analysts. Momentum indicators do exactly what their name implies: they track the momentum of the market and find opportunities for investors when the momentum is turning, beginning, or ending. Momentum Trading Momentum trading exploded with the growth of large institutional investors and heavy volume from investment banks. Small investors are now able to move alongside large buyers of stock to track their positions and ride the wakes in the market generated by large buying. For instance, if institutions are buying heavily into one stock in increments, a momentum trader can intercept the wave and ride it all the way to the peak. At that point, the momentum indicator will show weakness, and investors can exit with a hefty profit! Why Trade the Momentum Indicator? In your experience with trading, how often have you seen stocks rise and fall by the same degree and at the same pace? Probably never. This is because each individual trend in the market place has a certain amount of strength and weakness, as well as a differing amount of time that it will exist. With the use of a momentum indicator, you'll know when a trend is beginning, when it is ending, and when you should take profits. Yes, it really is that simple and profitable! The Workings of Momentum Indicators The momentum indicator relies on very basic functions of any high volume marketplace. We know that stock prices fall until all the investors desiring to sell their shares at a certain price have done so. Alternatively, we also know that prices rise until all investors willing to buy at a certain price have completed their trades. The momentum indicator tracks the change in volume through each of the two above trends, and it allows investors to see when buying or selling is picking up or exhausting, opening up the opportunity to ride each and every trend until the bitter end. Mixing in a Momentum Indicator A momentum indicator can be used alongside several other market indicators with absolute perfection. A healthy balance would be a momentum indicator used in conjunction with other non-correlated market indicators, including the RSI and MACD, which show divergence in strength based on price. The deployment of the momentum indicator allows investors to keep a level head about the market itself, as well as removes false signals common with the use of only one trading indicator. Anyone Can Use Momentum Indicators Momentum indicators work on virtually every market under the sun and any time frame imaginable. A momentum indicator can be applied to stocks, bonds, mutual funds, and currencies at time frames that range from 10 minutes to candlesticks as wide as a month. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Learn about how you can take full advantage of Barry Taylor's momentum indicator for emini futures on his trading blog http://www.Emini-Watch.com. |