Introduction to Momentum Trading – Trading Systems – 7 August 2022

Introduction to Momentum Trading

Profitable Trading Idea

In this article, we will explain how to use Price Momentum in Forex and Stock trading. We will start it by sharing some idea behind the profitable trading strategy. First of all, trading is an applied science. The profit for day trader comes from the good discipline driven by fact and evidence. Likewise, the profit for any systematic trading is the fruits of the good market analysis driven by fundamental and technical knowledge. To access more profits as a trader, you will need an improved discipline and technological advancement together allowing you to see the predictable behavior of the financial market. Many traders will highly emphasize that the technology is the key to success. Many will agree that the good automated indicators and tools will provide the edge to the average trader. It is the growing trend in the modern electronic trading environment.

Then where the profit comes from ? Profit comes from the regular movement in the market. That is something we can analyze and can make use to predict the next movement of the financial market. These five regularities shown in the Figure 1 are typically what traders are looking to catch in their trading.  We highly emphasize to look for or focus on the fifth regularity in your practical trading. The fifth regularity says that the price in the financial market will move in the zigzag path. Mathematically, this is described as fractal wave or repeating patterns. Fundamentally these happens to balance the supply and demand force.

Introduction to Excessive Momentum Trading

Excessive momentum is the technique to identify unusually strong supply or unusually strong demand by analyzing the price series. Why do we need to care about the unusually strong supply or unusually strong demand in our trading? It is because unusually strong supply or unusually strong demand are the sign of the end of the current trend ( or birth of new trend). As you probably guess, when the new trend is born, you can ride the highest profit as possible. Hence, the excessive momentum can provide you the attractive entries for your trading.

Now probably you are starting to make some sense. That is good. Your intuition will start to tell you that this excessive momentum can provide good trading opportunity. When the balance is broken marginally, we can consider it as the market anomaly. Two potential causes can drive the occurrences of Excessive momentum. Firstly, the excessive momentum could be caused by some irrational price reaction like the late comers buying stocks after the stock have gone up too much. Secondly, the excessive momentum could be caused by strong belief of the crowd that the price will continue to go in the same direction. Whichever scenario is driving the excessive momentum, it is where we can observe the crowd psychology clearly. Excessive momentum provides the good market timing. We will also confirm that with the volume spread analysis to make further sense with excessive momentum trading.

You can read everything about Momentum Trading from the original link below. 

Volume spread analysis and excessive momentum zone are not a rocket science although detection of excessive momentum requires the sophisticated algorithm. But we did a lot of work to provide you the automated tools for your trading. With the automated Excessive Momentum detection tool, you can easily detect the broken balance between supply and demand for your trading. With excessive momentum drawn in your chart, it is much easier to predict the timing of new trend and its direction.

Here is three important summary about the Excessive momentum, Accumulation and Distribution area.

1. Excessive momentum provides the important clue to detect accumulation and distribution area outlined by Wickoff Cycle. Other methodology of finding Accumulation and Distribution area is not as good as the Excessive momentum indicator.

2. Detected Accumulation and Distribution area can indicate the fresh price movement that will expand in full scale. This is often the best entry or exit for your trading with highest rewards and smallest risks.

3. Accumulation and distribution area do not come in alternating manner. It can come like accumulation – accumulation – distribution or distribution – distribution – distribution – accumulation. Hence, do not get confused it from the original Wickoff cycle screenshot.

Excessive Momentum Indicator can detect the final phase of the price momentum. This final phase of the price momentum usually provide the good place to identify the accumulation and distribution area in Volume Spread Analysis. At the same time, this final phase of the price momentum is a excellent place to identify the supply and demand unbalance in the market. Excessive Momentum Indicator is the excellent tool for the advanced momentum trading. Here is link to Excessive Momentum Indicator for MetaTrader 4 and MetaTrader 5.