hey my friend welcome to today's lesson
on momentum trading indicators using
momentum trading strategies you'll see
that I'm using Forex here this is a a good
tutorial for beginners also going to
show you some setup some patterns and
some strategies so well let's jump right
into it alright now as you can see here
I am using the indicator called momentum
and there it is right down there I'm
gonna use my little yellow highlighter
cool new tool I just got so I'm enjoying
playing with that and now there are many
different types of momentum indicators
so right now for today's purposes in
today's tutorial I'm only gonna be
discussing the indicator X are called
momentum the momentum indicator and as
you can see I have it set to a default
of 14 periods which equates to 14 bars
whatever time interval that you might be
using I'm using a daily and I'm using
forex market here euro US dollar but
again this is one of those indicators
that really can be used on pretty much
anything any time frame stocks Forex
futures commodities a minis intraday
trading it's really very flexible okay
now the first thing I have to tell you
about the momentum indicator is that it
is not a momentum indicator how do you
like that so isn't that ironic yep it is
literally not a momentum indicator in
fact most of the indicators that they
tell you fit into the category of
momentum indicators are not momentum
indicators the reason for that is that
momentum is velocity times mass that is
the mathematical equation for momentum
so with most momentum indicators in
technical analysis they are measuring
velocity or speed they're basically well
for example this one it's identifying
how fast prices moving up in down
by how much
that's going to compare the generally
the clothes of the price to the clothes
a certain number of periods ago whatever
you set the settings to in this day
we've got her in this video we've got a
set to 14 all right so it does measure
speed acceleration but where does the
mass part again velocity times mass is
the equation for momentum so I equate
mass in that sounds to volume in this
particular indicator in fact most so
called momentum indicators do not
incorporate volume into them and so
there is no weight if you will that is
incorporated into the equation and
therefore it is more properly termed as
a rate of change or acceleration or a
speed of market or velocity wherever you
want to call it so let's be just clear
on that all right so now you might see
that's nitpicking but it's really not
because there are really other
indicators that do incorporate both
velocity and mass into them or in other
words volume into them at the same time
so you will get very different readings
from those indicators you need to know
that okay so how do we use this puppy
okay so a couple of different things
that we would look for so the first
thing is we have a zero line here and
there you go I actually should probably
use a different color there since I set
my momentum indicator to blue but that's
our zero line so anything that hovers
around the zero line is basically just
neutral meaning quite literally no
momentum I'll continue to use the word
momentum just because well that's what
the indicator is called plan to avoid
any confusion you know I think I'll use
the let's use magenta maybe that'll
stand out better for us especially since
the zero line is in magenta okay so
there you go so you can see right in
here now let me bring my cool new yellow
highlighter up here so right there it's
just kind of hovering around zero and
what is the market doing well the mark
is pretty much just in a each Channel
fact we could actually take it all the
way back to here I suppose if we wanted
to but and so yeah it's just kind of
moving sideways not trending up not
trending down and you know there we go
so that's indicated by here as well
now one of the things that some people
have said as a criticism of momentum
indicators is that they basically just
follow price so you don't really need to
add them because they just follow price
so in that sense of course you get the
old objection that they're lagging
indicators and well that's a whole
nother discussion for another day maybe
I'll do a topic on that someday but
there are times when it can be leading
so for example let's look at right here
let's just say let's take that hi there
that low there in these highs right so
here we've got kind of a channel going
on and we've got you know high low
retest that high here we just kind of
went sideways now but look we do have a
difference here we do have a difference
here so here okay we've been moving up
and we've got a higher high in price
about a bang there we go and now here we
have an equal high on price but look at
our momentum indicator lower high lower
high so that can potentially be giving
us a leading indication that wait a
minute here we do have a different
reading on price than we have on the
indicator so the indicator is not just
following price here price went up and
made and equal high it actually
technically if you want to look down to
the very pixel on your chart real
neurotic about it it made a little bit
of a higher high but we're not going to
split hairs on that but this is a very
clear lower high on momentum
so what that would indicate is that
momentum - well we had bullish momentum
here okay and that really is just I
wouldn't say this is leading this but it
is confirming yes so very important
distinction when people say well there's
no such thing as a leading indicator you
know again blanket statements like that
are usually too simplistic this is one
of those cases so there were many times
and I would venture to say most times
that it is true that momentum indicator
for example will be following price and
then I would say it's confirming it's
confirming the move up already but there
are some times and it's not most of the
time it's a minority of the time there's
a minority of the time that it will give
us a different signal than price so
instead of getting and I'm getting a
little messy here so let's take all that
offer there just to make this crystal
clear so instead of getting a triple top
here we actually go down and so
definitely momentum the momentum
indicator there is not following price
right it's telling you that this move up
is on weakness there's been a what we
call momentum shift and that is very
significant how do we apply that to real
trading well let's say that you had been
long from down here and you allow the
market to retrace a little bit maybe it
likens a profits there but you've still
got some money on the trade it comes
back up here obviously you're going to
know well okay we've got resistance here
and we're gonna put in a double top or
triple top or if you want to look at
this or are we going to continue to keep
going up and so you have to make a
decision well do I want to let this
puppy run expecting that there's gonna
be more profits here or do I think
that's going to be at well this momentum
signal might tell you that you know what
I think
that's gonna be it I think that's as far
as it's gonna go so I think I'll go
ahead and just like some profits in
there and I let the market run pretty
good I made some pretty good money on
this already and I'm not gonna expect it
to move up anymore why because well the
rate of change the acceleration whatever
you want to call it momentum in this
case it is diverging yeah obviously it's
a little divergence there from price
action and then notice what happens
we've already kind of shown this about
that and just kind of go sideways and
that's just kind of go sideways to sono
trance so we go from a trendy market to
a non trending market and the first
signal we get an early signal if you
will is the divergence on momentum so
that is one practical application of how
it can be used I definitely recommend
whether you use this you know
traditional momentum indicator or one of
the other 700 3d 2000 momentum
indicators out there people get very
creative with these indicators it's
actually pretty dang impressive how
ingenious some people are with the
mathematic mathematics of these
indicators actually pretty darn
impressive so but I just wanted to share
with you the general concept here today
looking for strength when we're going in
the direction of the trend and then
we're looking for a momentum shift at
the end of a trend and then that's when
we would have a good indication remember
indicators do what they indicate the
answer is in the question but still they
indicate okay now we owe you a
probability scenario that hmm might not
expect this to continue to go up any
further great place to exit lock and
some profits there and look for the next
high probability trade so if you found
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