Trend Following Strategies: Riding The Momentum For Dallas Profits

Trend Following Strategies: Riding The Momentum For Dallas Profits – Momentum traders look for price movement that leads to higher prices in a bull market and lower prices in a bear market.

The easiest way is to find an instrument such as a stock that is consolidating. This is also called trading range.

Trend Following Strategies: Riding The Momentum For Dallas Profits

Trend Following Strategies: Riding The Momentum For Dallas Profits

You can use chart patterns such as triangles to find the price movement that is compressing. You will then look to trade the breaks.

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A simple way is to look for price convolution around a moving average such as a 20 EMA.

Price action bounces back and forth around a central price point. There is no fixed trend direction and you can set support and resistance levels. When the price breaks the horizontal line, you can determine how to enter the market.

A popular technical indicator, the RSI is generally used to indicate overbought or oversold conditions in the market.

Using the 50 line, we can use the RSI the same way we do the moving average.

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In this chart, RSI is not touching either oversold or overbought levels. The line basically hugs the midline (level 50) and when you see it, you could tell that the price is not trending.

The same thing applies to RSI. We want to see a market with low volatility and then a transition to higher volatility.

One of my favorite ways to better read momentum/lack of momentum is the TTM Squeeze technical indicator.

Trend Following Strategies: Riding The Momentum For Dallas Profits

It is a simple indicator to read and you can, at a glance, decide if this instrument is worth trading.

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Whether you are day trading or swing trading, the TTM indicator can be used as part of any momentum strategy.

We can use the indicator to give us a signal as to the state of the market. We will add price action to help us enter and exit a trade.

In this day trading example using a 15 minute time frame, we will look at creating a short trade.

As long as you see the histogram moving higher for bull markets or lower for bear markets, there could be strong momentum. Learn to drive these moves.

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You can use price action to see a trading range. When a market is no longer in a trend structure, such as higher highs and lower lows (lower highs and lower lows), a trading range exists.

We will look for the stock price to consolidate and use the TTM to confirm both the consolidation and the return of momentum to take advantage of a higher price.

The stock market has many stocks to choose from and using TTM compression, I quickly found this Pfizer price chart.

Trend Following Strategies: Riding The Momentum For Dallas Profits

When you see the price base below resistance or above support, this is a sign that a breakout may be imminent.

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On the arrow, we see momentum building, the dots turning green, and price breaking around the horizontal resistance line. A red candle could be your entry and the uptrend could continue.

The triangle chart pattern is a series of prices with lower highs and higher lows. It will often continue with this pattern to squeeze the price to the top (where the lines converge).

In this example, a trader can look at the red dots to see an instrument in consolidation. Sweeping up to the price, the consolidation alert through the TTM is confirmed with the chart pattern.

Any successful trader knows what needs to happen to exit a trade in a bull or bear market.

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Exits are a lesson in themselves, but let’s touch on a simple approach:  Average True Range and Risk-Reward Ratios.

Using the ATR, you would simply calculate 1 or 2 times the ATR for that period. Your stop can be set at this distance from the entrance.

Using reward-to-risk ratios, you would simply exit your position (or scale) at 1, 2, 3 times your original risk.

Trend Following Strategies: Riding The Momentum For Dallas Profits

Like all technical indicators, they lag the price. Make sure price action is watched for strong downside moves against any position you have.

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Shane on his trading journey in 2005, became a client in 2008 who needed structure in his trading approach. His focus is on the technical side of filtering trades in a macro view and he credits a handful of traders who have greatly influenced his relaxed approach to trading. Shane started out day trading Forex but has since moved on to a turn/position in most markets including commodities and futures. This allowed less time in front of the computer with no negative impact on performance. Do you want to benefit from strong market movements? Momentum trading allows you to take advantage of profitable opportunities by identifying markets and time frames with significant momentum. In this post, we will explore the essence of momentum trading and how it helps you discover high probability trades.

Momentum trading focuses on identifying markets that have undergone distinct up or down movements. In a bullish trade, the goal is to capitalize on a strong upward push in price. By buying during this momentum and selling as prices continue to rise, traders aim to profit from the prevailing trend.

In such cases, one could seek to enter the trade with the prevailing momentum and profit from the continued price increase. Effective momentum strategies involve identifying markets and time frames with clear short-term trends. While there is always the risk of a trend reversal, trading according to trend and momentum often adds to the credibility of your trade setup.

Many traders use momentum trading to look for short-term intraday opportunities. This approach involves focusing on shorter time frames, such as five minutes or 15 minutes. The appeal of this strategy lies in its ability to facilitate quick entry and exit of trades, allowing trades to be closed before you log out of your computer.

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Conversely, trading higher time frames, such as four-hour or daily charts, often involves holding trades for several days and incurring additional costs such as conversion fees. By trading shorter time frames, such as 15-minute charts, you gain access to a greater number of trading opportunities in various markets due to faster-moving trends.

Two of the simplest ways to find momentum trade setups are to look for momentum trades or use an indicator.

There are two simple ways to spot momentum trading opportunities: by looking for momentum trades or by using indicators. A momentum break occurs when the price has already made a strong move in one direction and then consolidates, forming a box-like pattern. When price breaks out of this pattern, momentum traders will trade in the direction of the breakout and ride the momentum.

Trend Following Strategies: Riding The Momentum For Dallas Profits

Take a look at the example chart below, where the price initially rises, pauses to consolidate into a box, and then breaks out higher, continuing the momentum.

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The moving average is popular because it can indicate the formation of trends and the strength of those trends. A common approach involves using two moving averages in combination.

In the chart below, you can see the 50 EMA (exponential moving average) and the 200 EMA. When the 50 EMA crosses below the 200 EMA, it signals a downtrend in price.

Most traders want to enter the market at the best price. This is no different with momentum trading.

A common strategy used to do this is to wait and watch for the price to drop into a supply or demand zone within the momentum.

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The first step in doing this is to identify when price is making a strong momentum move. The chart example below highlights this with a strong downward movement.

After that, we look for a pullback higher to find a possible entry. As the example below shows, the price is retracing to the recent resistance level. This could be a possible entry level to lower with momentum lower.

Momentum trading can be extremely profitable when done right. Many traders will use the strategies discussed in this post and add their other favorite tools and techniques to find high probability entry points.

Trend Following Strategies: Riding The Momentum For Dallas Profits

These include strategies such as using Japanese candlesticks, using price action indicators to confirm breakouts or other favorite indicators.

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Remember: always test any new strategies, systems or indicators on free demos or virtual charts to make sure you are successful with them before you ever risk real money.

Pip Hunter I hunt pips every day on the charts with technical analysis and price action indicators. My goal is to get as many pips as possible and help you understand how to use indicators and price action together successfully in your own trading. Trend-following trades are probably the most popular way for traders to generate trading signals. Traders expect that by using a trend-following trading approach they will be able to make more profitable trades by capturing long-term trends. In this article, I present five common and powerful ways to find trend-following trading opportunities and walk you through the various chart studies to improve your understanding of trend-following trading in general. What is Trend Following As the name suggests, using a trend following trading approach, traders must first identify an existing trending market and then look for profitable trading opportunities when the trend continues.

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