What is a good way to tell if a trend still has momentum? | Forex Factory

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What is a good way to tell if a trend still has momentum?

  • #1
  • First Post: Aug 4, 2014 5:28pm Aug 4, 2014 5:28pm
Can anyone suggest an effective way of telling whether a trend is likely to still have momentum behind it? A way to tell whether there is still a heavy imbalance between buyers and sellers?
  • #2
  • Aug 5, 2014 3:23am Aug 5, 2014 3:23am
Check cme futures as continuation indicator or ride trend before everyone selling fact
  • #3
  • Aug 5, 2014 6:27am Aug 5, 2014 6:27am
Depth of the corrections? The lesser the correction the bigger the imbalance.
  • #4
  • Aug 5, 2014 7:24am Aug 5, 2014 7:24am
Quoting Visitor
Depth of the corrections? The lesser the correction the bigger the imbalance.
That makes sense. I suppose certain oscillators, like a stochastic, would help when using such a method?
  • #5
  • Aug 5, 2014 7:41am Aug 5, 2014 7:41am
Quoting Ponzi Jr
Can anyone suggest an effective way of telling whether a trend is likely to still have momentum behind it? A way to tell whether there is still a heavy imbalance between buyers and sellers?
There is no piece of history price data what have you, that will ever say anything will still have momentum behind it. Emotion drives markets, mass psychology. You can only assume a probability to a certain direction being more likely using indicators(price) history.
All posts are my personal opinion
  • #6
  • Aug 5, 2014 7:57am Aug 5, 2014 7:57am
Quoting Ponzi Jr
Can anyone suggest an effective way of telling whether a trend is likely to still have momentum behind it? A way to tell whether there is still a heavy imbalance between buyers and sellers?
This depends largely on your method for determining that imbalance. In Forex you can try to use futures volume. You can also look at the behavior of price and how that effects standard indicators like MACD or RSI.

The crux of the matter is this: In my view, there are two ways a market "runs out of steam". Both manifest the same underlying structure but reveal themselves in different ways. The the example, I will use a bullsih scenario but the opposite is true for bearish as well.

Scenario #1:
Assuming a bullish trend...you must also assume there are more buyers than sellers or the price won't really be trending. As I'm sure you know...there is a point where the price is too high to attract any more buyers and as a result price stops rising...it may range or it may pull back...

If price pulls back (or retraces) you can probably be pretty sure (60%-75%) that the correction will be bought up again at some point...if this happens there is still some momentum left in the trend...

If price ranges...but doesn't pull back...this builds a case for lack of momentum...and the larger players are selling to the smaller players...the interest in holding prices up is largely the smaller players who have "waited for 'confirmation'" and are entering the market...but generally speaking they don't have enough volume to push the market much higher...thus when all the larger players have taken their volume out of the market...there is nothing left to drive it higher and prices fall...creating a cascade when the stops of those late entries get hit.

Scenario #2:
Assuming a bullish trend...scenario #1 is playing out and price is ranging at or near a significant high. However this time...the late entries come in larger force, (perhaps a news events drives it as well). Price breaks the range and moves up...very quickly...you may get three very strong bullish candles...

This is the exhaustion break. Price moves higher because very...VERY short term traders are making a quick profit and are then selling to those who are looking at those big candles thinking..."price broke the range and is moving strongly higher, I gotta get in on this!" Also many of the larger players will sell into this exhaustion rally.

At some point, the rally levels off...then plummets forming a 'V' Top. Again...the prices cascade down quickly because stops are being taken adding to the opposite flow.

These kinds of tops are most often used as the "divergence top" when using oscillators...because the move is so quick the lagging oscillator cannot catch up and form a higher high, thereby causing a divergent high (lower than the previous).

Summation: Order flow imbalances show themselves as trends causing prices to move in the direction of the imbalance...when order flow balances again, price will range...ranging markets are an indication of balanced order flow and a "heads up" that order flow may be about to change. Ranges that break and move away quickly are often exhaustion (or the last dying breath) of a trend. These types of moves are quick and reverse just as quickly. They can be found and tested by observing and keeping your head in the game...watching order flow...not indicators, but if you must use one...look for the divergence on the "exhaustion" move to give you a clue.
  • #7
  • Aug 5, 2014 8:16am Aug 5, 2014 8:16am
If you can see the trend, then it will turn soon (high momentum)
You must be in the trend and going the right way before there is a trend (low momentum)
  • #8
  • Aug 5, 2014 8:22am Aug 5, 2014 8:22am
Quoting gspajon
{quote} This depends largely on your method for determining that imbalance. In Forex you can try to use futures volume. You can also look at the behavior of price and how that effects standard indicators like MACD or RSI. The crux of the matter is this: In my view, there are two ways a market "runs out of steam". Both manifest the same underlying structure but reveal themselves in different ways. The the example, I will use a bullsih scenario but the opposite is true for bearish as well. Scenario #1: Assuming a bullish trend...you must also assume...
...
Ghost Rider - WWTBMD?
  • #9
  • Aug 5, 2014 8:46am Aug 5, 2014 8:46am
If the fundamentals are unchanged then the trend will most likely continue
tradewith60
  • #10
  • Aug 5, 2014 9:39am Aug 5, 2014 9:39am
what about using a Momentum indicator
or is this too obvious

there are various indis that work ok and together,
probably 100+ that work if set up reasonably well
just add aload of indis and tweak away
  • #11
  • Aug 5, 2014 10:15am Aug 5, 2014 10:15am
Quoting Ponzi Jr
{quote} That makes sense. I suppose certain oscillators, like a stochastic, would help when using such a method?
I have been trading since 2000 and gave up long, long, long time ago trying to find any usability of any indicators. I don't think that there is any real egde there.

Please check the price action.

Gbp/USD: There was a news spike in the morning but no follow through, no higher high. It fell back to the origin of the movement (1.6850) and stayed there even after the US news. It found buyers at 1.6850 again. They did not chase the price up earlier. So, no imbalance here.

EUR/USD: Fell 65 pips since the London open without any meaningful correction. Big imbalance. Any wonder that it broke down after the US news, along with the EUR/GBP? No. The EUR weakness (imbalance) was clear. EUR is a no buy till it starts making higher highs.

Of course, you don't know what size order is in front of the price movement, the flow can change any time. You can detect the imbalance only at the present. However, that may give you some indication regarding the future.
  • #12
  • Aug 5, 2014 10:43am Aug 5, 2014 10:43am
Quoting 60minuteman
If the fundamentals are unchanged then the trend will most likely continue
First educated post in this thread
"There's a sucker born every minute" - P.T. Barnum
  • #13
  • Aug 5, 2014 2:37pm Aug 5, 2014 2:37pm
Quoting gspajon
{quote} This depends largely on your method for determining that imbalance. In Forex you can try to use futures volume. You can also look at the behavior of price and how that effects standard indicators like MACD or RSI. The crux of the matter is this: In my view, there are two ways a market "runs out of steam". Both manifest the same underlying structure but reveal themselves in different ways. The the example, I will use a bullsih scenario but the opposite is true for bearish as well. Scenario #1: Assuming a bullish trend...you must also assume...
Thanks, that's very helpful stuff.

Quoting Mingary
If you can see the trend, then it will turn soon (high momentum) You must be in the trend and going the right way before there is a trend (low momentum)
So you're saying that it's easier to pick tops and bottoms, than it is to trade the trend? That's a bold statement.

Quoting Carlsberg
what about using a Momentum indicator or is this too obvious there are various indis that work ok and together, probably 100+ that work if set up reasonably well just add aload of indis and tweak away
How would you use a momentum indicator, by looking for divergences?
  • #14
  • Edited 4:53pm Aug 5, 2014 4:42pm | Edited 4:53pm
Quoting Ponzi Jr
{quote}
Quoting Mingary
If you can see the trend, then it will turn soon (high momentum) You must be in the trend and going the right way before there is a trend (low momentum)
Ignored
So you're saying that it's easier to pick tops and bottoms, than it is to trade the trend? That's a bold statement.
I am just saying don't look for a trend and don't look for a top or bottom. Let others (individuals, consensus, media, news ...) tell you and do the opposite, but, in time you should choose to ignore that as well..
  • #15
  • Aug 5, 2014 7:35pm Aug 5, 2014 7:35pm
VOLUME

Add OBV, it helps to add confirmation on those levels of S&R. there is also OBV S&R, they help to show when reversal are going to happen was as well as breaks of S&R, when divergence/convergence happens,
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Learn, a forex trader must, unlearn and relearn he will.
  • #16
  • Aug 5, 2014 8:43pm Aug 5, 2014 8:43pm
Quoting Naokia980
Check cme futures as continuation indicator or ride trend before everyone selling fact
Hi Naokia,

Can you elaborate on this?

1) How do you get the data from cme futures?
2) What to make of it from the price/open positions?
  • #17
  • Edited 3:40am Aug 6, 2014 2:54am | Edited 3:40am
The only way to observe what you all are looking for is by your own eyes. You don't need futures data or an indicator to tell you what you can see on your chart. Divergence is useless if the market is trending strongly.

The price moves in waves. It is uptrend if it makes higher highs with higher lows. It is downtrend if it makes lower lows with lower highs. The steeper the movement with shallower corrections, the stronger the trend. You don't have to know anything else. Everything else is just noise, distraction.

Think it over. Why do you need a tool to rely on? It has psychological reason. You don't think that you can make a good decision, you need a signal, need something to blame the failure on. Then changing settings and timeframes, and so on...
What is the same on all the timeframes? Support/resistence, higher highs and lower lows.

I am pretty sure in some years you all will get to the same conclusion... after trying all the indicators and theories.
But, of course, it is up to you. I am sorry if I seem to be combative, just wanted to make my point clearly. I am done.
  • #18
  • Aug 6, 2014 4:05am Aug 6, 2014 4:05am
Quoting Visitor
The only way to observe what you all are looking for is by your own eyes. You don't need futures data or an indicator to tell you what you can see on your chart. Divergence is useless if the market is trending strongly. The price moves in waves. It is uptrend if it makes higher highs with higher lows. It is downtrend if it makes lower lows with lower highs. The steeper the movement with shallower corrections, the stronger the trend. You don't have to know anything else. Everything else is just noise, distraction. Think it over. Why do you need a...
I strongly agree with this.
  • #19
  • Aug 6, 2014 4:11am Aug 6, 2014 4:11am
For what it's worth, price discovery is the only way of determining direction...and there are grades of the process.
The road to pipland is arduous and fraught with challenge.
  • #20
  • Aug 6, 2014 4:44am Aug 6, 2014 4:44am
people please stop saying "the only way" it's the most naive and uneducated response to anything when it relates to trading. Obviously there are many way's you can measure when a trend has ended or is ending and the definition is open to massive subjectivity anyway.

As with most trading concepts you are best to develop your own rules and guidelines but there is never only one way and it is very hard to prove that one way is the best. Price goes up and down and it should be fairly clear and logical that there will be many many ways that can be devised to profit from that. If you start trading logically and stop following stupid and often irrelevant rules you will quickly realize that it is often the trader and his mindset (decision making process) that makes the difference, not the technical strategy he uses to define his entries...

morning rant over, back to it!
tradewith60
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