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walterw

Momentum vs Non-Momentum

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Hello everyone ¡¡ we know that market climate could be classified into two great catergories: momentum (strength, trending) and non-momentum (weak, non trending) conditions... thus giving us two clear contexts in order to trade diferent type of strategies...

 

For example if you have momentum conditions you may want to trade trend trades and trail your position as long as possible... now if you have non-momentum conditions you may want to scalp the cycles back and forth...

 

So its a trader`s MUST to understand market climate... his strategy may work on certain conditions, or may not on other conditions... so if he understands the conditions his strategy has more chance to succeed...

 

There are many ways to understand market climate.... one of the ways I always look for that is on a 110T (russell) chart with a keltner 50 exp 3.5 atr... if bars are inside keltner, market is on non-momentum conditions, if market gets outside of keltner we have momentum conditions...

 

Now I want to show a very nice new way I find to measure climate... In this case I am going to use a 200V (russell) chart and on the price pane will have a 20 simple ma and a 50 simple ma with a keltner 50 simple 1 atr ...

 

You will notice that when the 20sma its "outside" the keltner and doesnt come back inside we got momentum, when "inside" we have non-momentum....

 

Simple as that... from there on you can see diferent strategies you can work on.... let me attach some examples.... cheers Walter.

m1.thumb.png.2bc0340ee1d8b9e1861fc6d7027593ba.png

m2.thumb.png.7fda3d3a9c56494da05f7dab4486bb25.png

m3.thumb.png.2b41165957596c15334da81e4bbc2b2d.png

m4.thumb.png.6f4f2d2c0352b3e4ad4c9744e8dea5ff.png

m5.thumb.png.8c48a7b6861564b6e2c70d37c4c53006.png

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seeinG your momentum, non-momentum study. it is correspons to impulse elliott waves and correction elliott waves.

 

impulse waves = momentum

 

correction waves = non-momentum.

 

a propper counting of elliott waves it's another wave to identify momentum and non-momentum

 

the advantage of elliott is that seeing a big scale of time you can see a bigger picture of whats going on

 

MX

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seeinG your momentum, non-momentum study. it is correspons to impulse elliott waves and correction elliott waves.

 

impulse waves = momentum

 

correction waves = non-momentum.

 

a propper counting of elliott waves it's another wave to identify momentum and non-momentum

 

the advantage of elliott is that seeing a big scale of time you can see a bigger picture of whats going on

 

MX

 

yes Malvado, wave counts on a bigger time frame can perfectly be a way of measuring momentum... would be interesting to determine statistically how many times (mostly) the 3rd wave performs outside keltner.... cheers Walter.

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Doesnt the ADX indicator show the strength of a trend?

 

adx may show, but as to my experience it lags too much... meaning when adx starts to show strength you lost almost half the trip already...

 

I like more to see standard deviations or atr levels where you can recognize the market taking more temperature... and without lagging that much...

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adx may show, but as to my experience it lags too much... meaning when adx starts to show strength you lost almost half the trip already...

 

I like more to see standard deviations or atr levels where you can recognize the market taking more temperature... and without lagging that much...

 

Another reason to use "rawADX", or simply the "unprocessed" DMI reading before it is "transmogrified" into ADX.

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Todays first hour of session has been a clear non-momentum climate :zzz: ... I like to see how price cant take on keltners outerbands... this is the ideal cycle scalp context... cheers Walter.

5aa70dd7ebfe5_nonmomentum1.thumb.png.3c3d7eda3272e03b8bfa2c41a8c15645.png

5aa70dd80066b_nonmomentum2.thumb.png.e7c83dd52d3d536c6e6c4cffc13bd751.png

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adx may show, but as to my experience it lags too much... meaning when adx starts to show strength you lost almost half the trip already...

There aren't many indicators that are based on past prices that don't lag too much... By definition they are going to lag, some more than others I suppose, but lag nonetheless.

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There aren't many indicators that are based on past prices that don't lag too much... By definition they are going to lag, some more than others I suppose, but lag nonetheless.

 

Well thats why I like bands for momentum determination... they give you an area on the present price where we know that momentum declares itself there... so its kind of a leading indication of momentum conditions... cheers Walter.

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There aren't many indicators that are based on past prices that don't lag too much... By definition they are going to lag, some more than others I suppose, but lag nonetheless.

 

Use RSI on Delta Volume then. Seems to work out well for me.

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I'm sure some combo's of indicators may 'work' but they all will lag, which is what I was commenting on with Walter's initial post. There's no such thing as a leading indicator when it's based purely on past price action. Again, I'm not saying that ADX, RSI, etc can't work, just saying that you will see a lag purely based on what/how the indicator interrupts and presents information.

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In terms of indicators, they are a derivation of price... so yes they will always lag...

 

what an indicator can do for you is what a satelital nav on your car can do when you are traveling... make your journey more easy and tell you where you are...

 

the nav its not the road... but it shows you where you are...

 

For example today, this outerbands tell us clearly the type of day we are having...

 

and yes, I still dont get a decent flip ¡¡¡ there is no momentum... we cycle back and forth between bands, wich is a nice reason I am developing the "cycle" trade wich I will soon present... cheers Walter.

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Volume leads price, so an RSI of delta tick volume should indicate where price is headed....or should I say, MAY be headed....

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Volume leads price, so an RSI of delta tick volume should indicate where price is headed....or should I say, MAY be headed....

 

Cooter : can you share a chart ? would be nice to see... thanks Walter.

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Cooter : can you share a chart ? would be nice to see... thanks Walter.

 

Yep, I'll try to get one off my trading computer and upload it here.....

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Here's a pic....RSI of Tick Delta Volume, as promised....to get the resolution, CLICK to ENLARGE:

 

attachment.php?attachmentid=1519&stc=1&d=1179342162

Zeroline crosses and RSI peak divergence are the key signals with this....

5aa70dd8071fc_RSIofTickDeltaVol-ES377t.thumb.jpg.2701767a39b82e54f90d7a82deda10dc.jpg

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Yep. But mainly I use it as my anchor chart for trading the ER2. Works like a charm.

 

Twice the $$$ and half the pain.

 

Some folks scalp for ticks. I scalp for full cents instead.

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Pick an RSI value and try it yourself....or better yet, look CLOSELY at the pic - assuming you enlarged it to begin with - and you'll find your answer.

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I want to add here a little word on momentum and how I am actually looking at it....

 

At this time I had decided to put all my concentration on "flip" trades wich are giving me some nice satisfactions... so in terms of my M counter trades I am taking a little vacation... I like to trade only ONE setup, go to the market with only ONE thing on my mind, so I can keep things as clear as posible and really focus on my ONLY setup...

 

Now Momentum considerations are playing a great roll on "flip" trades... the original idea of flip didnt take that into acct, as things evolved I really found it very beneficial to look only for flips that could have momentum potential...

 

 

My momentum readings are originally inspired on John Novak Nexgen work thru his "trend bands" that happen to be a very simple keltner exponential channell...

 

When we are inside the channell we are in non-momentum conditions (weaknes, cycle, congestion )

 

 

When we get outside the the channell we are in momentum conditions ( strength, trending )

 

On the graphic below I try to organize the keltner "momentum map" as inside non-momentum and outside centrifugal action momentum conditions...

 

Cant get more simple than that... Now the true potential of this is when you get a momentum build up outside keltner and you hold your trade until you get back inside keltner.... cheers Walter.

Momentum.thumb.png.dbe62b3ac77cf68113961e7a0d8e3d6b.png

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While there is centrifugal motion, there is also "gravity", or the tendency to regress toward the mean when momentum is diminishing.

 

Would this also be a correct interpretation of how things work here?

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While there is centrifugal motion, there is also "gravity", or the tendency to regress toward the mean when momentum is diminishing.

 

Would this also be a correct interpretation of how things work here?

 

yes, that is called "refresh action" by Drummond theory and it is the normal pullbacks you can expect on the zig zag motion of market... thats where "flip" trys to make a competitive timing.... now, while you are still outside keltners we can consider it momentum, thought momentum will eventually dry and refreshing will happen all the way back to the mid band on a first instance, crossing the mid bands could suggest the starting of a reversal... or the stall of any trend on a coil...

 

This areas give you a map where you can expect certain outcomes... cheers Walter.

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The question of trading in momentum vs. non-momentum conditions, also known as trading in trending vs. sideways/whipsaw markets seems quite central to improving trading results. However there are few satisfying answers to this question. As mentioned above - indicators lag. Eye observations lag as well because only after some passage of time a trader is able to discern that he is in a whipsaw market... and still will not know when non-momentum conditions change into momentum conditions until after the fact. Channel breakouts are supposed to free those who use them from participating in a whipsaw market, but then again - there are false breakouts. Livermore and Seykota both advise to avoid whipsaw markets, but when I asked Seykota how it is posible to discern that a trend signal is not to be taken because there are whipsaw conditions now, he did not clarify the issue. John Carter in his book states that he is able to classify days of trading (and appriopriate methods to follow on such days) as trending and sideways, but I am not sure if he is really able to that before the open or only after some market action - or inaction.

 

I would say that trends and whispaws are largely unpredictable, but some gut feel based on experience and concentration may improve the odds in that matter a bit.

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The question of trading in momentum vs. non-momentum conditions, also known as trading in trending vs. sideways/whipsaw markets seems quite central to improving trading results. However there are few satisfying answers to this question. As mentioned above - indicators lag. Eye observations lag as well because only after some passage of time a trader is able to discern that he is in a whipsaw market... and still will not know when non-momentum conditions change into momentum conditions until after the fact. Channel breakouts are supposed to free those who use them from participating in a whipsaw market, but then again - there are false breakouts. Livermore and Seykota both advise to avoid whipsaw markets, but when I asked Seykota how it is posible to discern that a trend signal is not to be taken because there are whipsaw conditions now, he did not clarify the issue. John Carter in his book states that he is able to classify days of trading (and appriopriate methods to follow on such days) as trending and sideways, but I am not sure if he is really able to that before the open or only after some market action - or inaction.

 

I would say that trends and whispaws are largely unpredictable, but some gut feel based on experience and concentration may improve the odds in that matter a bit.

 

 

Jakew : nobody can tell whats gona happen, you only have areas with the most odds on your favor, then you have to manage small stops vs large trails... thats what this bussiness is all about... otherwise there is no way to place a trade because the market is completely relative on its output BUT it has clear areas where he normaly shows his cards... cheers Walter.

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