http://www.netpicks.com/tjgiveaway1 - YOUR FREE TRADING SYSTEM Trading the trend is something that virtually every trader is told to do. It makes sense because it stands to reason that getting on a position in the main direction of the market can rack up the money. The issue then becomes: How to identify the trend so you can trade that direction Determining if trend is about to turn because it’s run the course Not an easy things to do. Every trend indicator uses past price so they are always going to be one step behind. As well, waiting for a trade in the direction of the trend can keep you on the sidelines until price reaches your area of interest. See more at: http://www.netpicks.com/dont-forget-momentum/

1. How To Trade Momentum
http://www.netpicks.com/dont-forget-momentum/

2. Trading the trend is something that
virtually every trader is told to do. It
makes sense because it stands to
reason that getting on a position in the
main direction of the market can rack
up the money.

3. The issue then becomes:
- How to identify the trend so you can
trade that direction.
- Determining if trend is about to turn
because it's run the course.
Not an easy things to do.

4. Every trend indicator uses past price so
they are always going to be one step
behind. As well, waiting for a trade in
the direction of the trend can keep you
on the sidelines until price reaches
your area of interest.

5. There are also different trends on
different time frames. I'm sure you've
heard "if you ask what the trend is, the
answer is what time frame are you
referring to?".

6. Over the years, one of the biggest
issues I've seen is people being simply
confused on which direction to trade.
One of the popular methods of trading
is determining the direction of the
trend on a higher time frame such as
the weekly; and then trading that
direction on the daily.

7. Taking a look at two popular trend
determination tools you will see that
we have some conflicting information.

9. 1. Trend lines are used in a fanning
way to accommodate swing levels.

10. 2. This is a 50 SMA and we can use
either the slope of the line for
direction or price relation to the
average.

11. 3. This trend line makes things
interesting as the average says short,
this line says long plus there are a few
directional chart patterns in this area.

12. The bottom line is there is some
controversy on our overall price
direction when it comes to the point
where the price trend runs out of
steam.

13. One idea I've used over the years is
using price momentum as a basis for
direction and even for triggering a
trade.

14. Think of momentum like a car on a hill.
Don't think of the direction of the car
but look at how fast the car is tackling
that hill. As the hill gets steeper, the
car starts to slow down.
For trading, momentum is simply how
fast the trend of price of moving or
"Rate of Change"

15. Note: There is an indicator called Rate
of change or ROC but that will not be
introduced in this trading piece.

16. When using momentum remember to
keep it apart from the price trend. The
momentum reading is about the
momentum trend. You won't always
see price turn when the indicator turns
unlike trend indicators.

17. You can actually have price moving up
and the indicator moving down as the
momentum or change in price is
slowing down. (this is not a bad thing
either).

19. 1. Price continues to advance upwards
and not while not labeled, the 50 SMA
says uptrend.

20. 2. Momentum indicator indicates a
decline in price momentum even
though the trend is up.

21. With this one example you can see
that the price is not making strong
moves and even though trend is up,
the fact that momentum is going the
opposite way can keep you out of
trades on this time frame.

22. What about trading the price
momentum direction of the higher
time frame on the lower time frame?
Can you have a trading plan that let's
you take advantage of different stages
of the trend by using momentum?

23. Due to space restraints, I can't break
down the daily chart of the following
hourly chart. What you should know is
that using the moving average, the
daily remains in an up trend. Using a
trend line, the trend is up until it
breaks which I will show in this chart.

25. The green line on the left shows where
the daily momentum rolls over to
bearish. The red line indicates where
the daily momentum rolls over to the
trend direction of bullish.

26. 1. The trend channel highlights price
action that offers trading opportunities
depending on your style of trading.
There are mini pullbacks and range
breaks throughout the move.

27. 2. This highlights the price level where
the daily trend line breaks. There are
no retests of the broken trend line on
the daily chart.

28. 3. Highlighting price action that gives
you the retest off the daily zone but
multiple moves to the downside.

29. The yellow circle is interesting as it
occurs after a large move after the
trend line break. Many traders would
treat this as a bullish move and look to
position on a retest. The retest
shatters the line.

30. As well, very often after a strong
move, consolidation near the highs are
trading opportunities for further
upside moves.

31. None of that occurs as we sit in a
down trend of daily momentum while
the trend is bullish

32. At the red vertical line, we get daily
price momentum turning to the upside
and we could be on alert to find setups
to get us into the daily price trend.

33. You often hear the counter trend
trading is a fools game but here, we
did didn't blindly take counter trend
trades as we needed to see
momentum drifting from the up trend.

34. There is a much better use for price
momentum and that is when all signs
point in one direction.
If we combine the momentum and
trend, then we have a potential 1-2
punch for our trades.

35. This chart takes up where the previous
one left off. The daily chart just had
it's momentum swing in the direction
of its trend and now we look to take
advantage of this powerful
combination.

37. The green line is where daily
momentum turned and the red line is
where the daily momentum turned
bearish.

38. The trade setups are simple and in
order to have some degree of non-
bias, I moved the chart forward step
by step and reacted as it played out:

39. 1. Flag breakouts and structure inside
the flags

40. 2. Consolidation at the top of strong
moves

41. 3. Pullbacks to areas where price
either rockets from or to areas where
the move to break the down trend line
originated

42. You can see the move up in this chart
runs pretty strong and knowing you
had trend and price momentum
supporting your position can help you
stay in your position longer.

43. Having the momentum on your side is
just part of the puzzle. It just sets the
potential that a trading opportunity
may be possible depending on your
method of trading. Even using this
powerful trading combination, you still
need your trade setup + trigger to
actually have a trade.

44. Whatever method you trade now, try
to incorporate the information in this
trading post to see if it is something
that proves useful.