Momentum Trends

What's a Momentum Trend?

A momentum trend is one which has more strength than the previous one, it can be portrayed using a much steeper trend line than the one that was in play before. When a new line forms that's much steeper than a earlier one we say that the trend has gathered extra strength & becomes much stronger. These types of trading setups requires a different type of market technical analysis.

In the trading examples explained below: Also when stock price is moving upwards within a channel, if it breaks the upward channel a stronger trend is shaped as illustrated in the illustration below. If as a trader your chart breaks an up indices trendline to the upside in an upward moving market like the one below, Do not Try to Sell, Buy More Contracts, Remember this indices trading tip it can make you a lot of money like the way it did in analysis below.

Channel Break Up - More Strength on Up Movement

Using the same analysis examples above we can also see how the new steeper trend lines were initiated showing the trend was gathering momentum.

This is illustrated by the steeper trend lines which can be depicted as the price progresses.

The newly initiated trend has more momentum than the earlier one as displayed by the formation of the steeper trend line.

This forms trend B & C as illustrated in the illustration below portrayed using the MT4 technical analysis software, The momentum added a new steeper line as plotted on this trading chart.

This is shown in the trading example explained and illustrated below by the three lines A, B and C showing formation of stronger trends as the trading market continues to gain momentum.

Price Gathering More Momentum

However, when the steepest trend-line is broken then even others trend lines will most likely be broken too. It's best to take profit once the steep most trend-line is broken.

This strategy can also be used by short-term traders like the day trader or the scalper, this pattern will oftenly form on the 5 minute & 15 minute chart. This parabolic trend lines can be used to know where to take profit. A trader should immediately book his profit as soon as the steepest trendline is broken.

How to Trade These

The momentum trendlines are good analysis tools for determining where to take a profit early before other traders. This momentum trading setup forms oftenly on 1 minute, 5 min and 15 mins charts & therefore suitable for scalpers & day traders. For day trading which is most common? - the best chart to use is 15 mins sometimes the 5 minutes, for example after entering a short term trade transaction either buy/sell and the trading market moves some pips in your favor and you identify this pattern then it's best to exit once the steepest trendline is broken & take profit at that point.

Analysis Examples

For this example we shall use short term chart of minutes for drawing, when the set-up appeared as below, it was a good point to take the profit.

Trading the Momentum Market Moves

In the above example a trader trading long would have waited until the steep most trend line was broken then closed the trade and taking profit at this place thus making profit of 42 pips on this buy trade. One would have exited the trade position at the best time & thus avoiding the choppy market that followed.

Parabolic Trends

Sometimes a market moves in a parabolic formation, & this is seen when panic buying sets in and prices is driven vertical. During a parabolic up move, there is almost a complete absence of bears, which initiates a vacuum of buying. When this occurs traders scramble to just get into the trading market regardless of price, in the fear of being left behind. This can make the biggest price movements in the shortest amount of time, traders will put buy orders in this trade setup.

For this type of move it's best to keep buying - no need for technical analysis just keep buying.

This trend will last for months on end even upto 2 years, for this time period just keep buying & as long as those week & monthly trend lines are holding just keep opening buy and buying.

When indices moves in this manner, the highest point which is reached often symbolizes end of a move with indices prices not going back to the ultimate peaks again for a long time. When this level is reached and the most steep most trend line is broken it's best to consider that as a trend market reversal & it is best to take time out off the trading market and enjoy your profits for sometime before calculating your next move.

The same can also happen for a down trend when there is panic selling and stock price is also pushed vertically. This especially happens during recession.

The steeper a trendline angle, the less reliable it becomes. When the most steep is broken its best to get out of this trade position. The example explained and illustrated below is for crude oil that has initiated a parabolic pattern. Another example is indices that formed on the weekly/monthly chart during the period shortly after the steepest line in the crude oil chart was broken.

As a trader if you come across a parabolic trend in an up direction just keep buying & buying some more and you'll more likely to make profits trading this market trend direction, there will be no added analysis requirement just the trend lines. The one thing to remember is to exit once the steep most line is over because the reversal on this pattern is very quick you need to also be very fast. Just make sure that you get out at the correct spot just like in the above examples.