Momentum Trends - Different Type of Market Technical Analysis

What's a Momentum Trend?

A momentum trend is one which has more strength than the previous one, it can be plotted 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 analysis.

In the example below: Also when price is moving upwards within a trading channel, if price breaks the up channel a stronger trend is initiated as illustrated in the illustration below. If as a trader your chart breaks an up trendline to the upside in an upward direction moving market like the one below, Do not Try to Sell, Buy More Contracts, Remember this Forex tip it can help make you a lot of money just like the way it did in trading 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 currency was gaining momentum.

This is shown by the steeper trendlines that can be portrayed as the price progresses.

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

This forms trend B & C as shown in the diagram below depicted using the MetaTrader 4 analysis software, The momentum added a new steeper line as plotted on this chart.

This is illustrated in the example below by the three lines A, B and C showing formation of stronger trends as the market continues to gather strength.

Price Gaining More Strength

However, when the steepest trend line is broken then even others trendlines 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 setup will frequently form on the 5 min and 15 minute chart. This parabolic trendlines can be used to know where to set take profit. One should immediately take his profit as soon as the steep most trend line 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 trading charts & therefore suitable for scalpers & day traders. For day trading which is most common? - the best chart to use is 15 mins sometimes 5 mins, for example after entering a short term trade transaction either buy/sell and the market moves some pips in your favor and you identify this pattern then it's best to exit once the steepest trendline is broken and take profit at that point.

Technical 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 profit.

Trading the Momentum Market Moves

In the above example one trading long would have waited until the steepest trendline 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 forex market that followed.

Parabolic Trends - What is it?

Sometimes a market moves in a parabolic formation, and this is seen when panic buying sets in and prices is pushed vertically. During a parabolic up move, there is almost complete absence of sellers, which forms a vacuum of buying. When this occurs traders dash to just get in to the market regardless of price, in fear of being left backwards. This move can make the largest price moves in the shortest amount of time, traders will put buy orders in this 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 weekly & monthly trendlines are holding just keep opening buy and buying.

When a stock or currency moves in this manner, the highest point which is reached often symbolizes end of a move with prices not going back to the ultimate highs again for a very long time. When this point is reached & the most steepest trendline is broken it is best to consider that as a trend reversal and it's best to take time off the market & enjoy your profits for a while before calculating what's your next move.

The same can also happen for a downtrend when there is panic selling and price is also driven vertical. This especially happens during recession.

The steeper a trend line angle, the less dependable it becomes. When the most steep is broken its best to exit this trade transaction. The example below is for crude oil that has shaped a parabolic setup. Another example is gold 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 happen-to come across a parabolic trend in an upward 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 trendlines. 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 example.

For example, the above parabolic movement is of crude oil trading chart, the traders had dominated to drive the price of oil from $70 to $150 over a period of a couple of several months at the top of the market those who call themselves analysts were so bullish that they predicted the price of crude oil would hit a high of $200, what these analysts did not know this concept a.k.a Vacuum buying, in analysis market trading as long as the trendlines held the trend of the market was upward, but even after the first steepest trendline was broken the analysts kept insisting the price would hit $200, guess what, after the most steepest trend line was broken it didn't even take 2 weeks to take the price of oil, back to $50 at sometime it was even $35. That is parabolic analysis, now-you-knownow-you're-informed.

Good examples of this pattern on charts is the week and month price charts for Gold and Crude Oil, these charts can be found on MT4 software depending on your broker.