Different Type of Market Analysis

What is a Momentum Trend?

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

In the example illustrated below: Also when price is moving upwards within a trading channel, if price breaks the up channel a stronger trend is initiated as shown in the diagram below. If as a trader your trading chart breaks an upward trend line to the upward side in an upward direction moving market like the one below, Do not Try to Sell, Buy More Contracts, Remember this stock index trading tip it can make you a lot of money just like the way it did in the trading analysis below.

Channel Break Upward - More Momentum on Upwards Market Movement

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

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

The newly shaped trend has more strength than the previous one as displayed by the forming of the steeper trend line.

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

Price Gaining More Strength

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

This technique can also be used by short-term stock traders like the day trader or the scalper, this pattern will oftenly form on the 5 minute & 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 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 occurs frequently on 1 minute, 5 minute and 15 minutes 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 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 Example

For this example we shall use short term trading 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 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 a profit of 42 pips on this buy trade. One would have exited the trade position at the best time & thus avoiding the choppy stock index trading 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 market regardless of stock index price, in the fear of being left behind. This can make the biggest price movements in the shortest amount of time, traders will set buy trade orders in this trade setup.

For this type of move it is best to keep opening buy - no need for analysis just keep opening buy.

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

When a stock indices instrument moves in this manner, the highest point which is reached often symbolizes the end of a move with prices not returning 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 reversal and it's best to take time off the market & enjoy your trading profits for sometime before calculating your next move.

The same can also happen for a down trend when there is panic selling and 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 illustrated below is for crude oil that has initiated a parabolic pattern. Another example is stock 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 upward trend just keep opening buy and buying some more & you will more likely to make profits trading this direction, there will be no added technical analysis required 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.