Trade Stock Indices

Momentum Trends

What's a Momentum Trend?

A momentum trend is characterized by greater strength compared to the preceding one, and it can be depicted with a significantly steeper trend line than before. When a new, steeper trend line appears compared to the previous one, it indicates that the trend has gained momentum and become substantially stronger. These scenarios necessitate a distinct approach to market analysis.

In the examples below: Also, when a stock's price is rising within a channel, a stronger price trend starts if it goes above the channel, as shown in the picture below. If the chart breaks a trendline upward in a rising market like this, don't sell: buy more contracts. Remember this tip - it could earn you a lot of money, just like it did in the analysis below.

Channel Break Upwards - Momentum Trends & Parabolic Trends

Breakout Above Channel Boundaries - Signifies Increased Buying Power in the Ascent

If we look at the same examples from before, we can also see that new trend lines were starting, which shows the trend was getting stronger.

This is evidenced by the steeper trend lines that can be observed as the market price evolves.

The newly established trend exhibits greater vigor than the preceding one, as visually suggested by the steeper trajectory of its trend line.

This forms trend B & C as is shown in the illustration below illustrated using the MetaTrader 4 trading analysis software, The force added a new steeper line as plotted on this trading chart.

The accompanying example diagram clearly demonstrates this, with lines labeled A, B, and C illustrating how market trends strengthen their momentum as the market continues to gain force.

Momentum Trends in Indices Trade - Momentum Trends & Parabolic Trends

Price Gaining Increased Velocity

Nevertheless, the breach of the steepest trend line often precipitates the failure of other, less acute trend lines as well. It is prudent to secure profits once the most aggressive trend line has been violated.

This trading strategy also can be used by short term traders such as the intra-day trader or the scalper, this pattern will oftenly form on the 5 Minute & 15 Minutes chart. This parabolic trend-lines can be used to know where to tp order. A trader should immediately book his profit as soon as the steepest trend-line is broken.

How Do You Trade These

The trendlines for measuring speed are helpful tools to figure out when to cash in early before other people trading do. This speed arrangement usually happens on charts showing 1, 5, or 15 minutes, so it's good for quick and short-term traders. When doing regular short-term trading, the 15-minute chart is usually best, but sometimes the 5-minute chart works: like, if you start a quick trade to buy or sell and the market moves a bit in your favor and you see this arrangement, it's smart to leave once the steepest speed line breaks and get your profit there.

Analysis Examples

For this example, we will use a chart showing minutes for drawing. When things looked like below, it was a good time to get profits.

Trading with Momentum Trendlines - Trend Analysis of Parabolic Trends on Chart

The Momentum in Market Movements.

In the given scenario, a trader taking a long position could have waited until the steepest trend line was broken and subsequently closed their position to secure a profit of 42 pips. By exiting at the optimal time, they would avoid getting caught in the choppy, range-bound market that followed.

Parabolic Trends

On occasion, a market will enter a parabolic phase, typically observed when intense buying pressure drives prices almost vertically upwards. During such a rapid ascent, sellers (bears) are virtually non-existent, creating a buying vacuum. In this scenario, traders rush to enter the market irrespective of the price, driven by the fear of missing out. This behavior can precipitate the most substantial price movements over the shortest time frames, leading traders to place buy orders in response to this setup.

For a price movement of this nature, the recommended action is to persist in buying - analysis is unnecessary: simply continue purchasing.

This trend is expected to persist for several months, potentially extending up to two years. During this period, continue purchasing, and as long as the weekly and monthly trend lines remain intact, keep entering buy positions.

When prices move like this, the highest point reached often means the move is over, and prices will not reach those high points again for a while. When this point is reached and the steepest trend line breaks, it is best to think of it as a market trend reversal and take a break from trading to enjoy your profits before planning your next trade.

Conversely, a similar sharp price movement can occur during a downtrend stemming from panic selling that drives stock prices steeply downward, a phenomenon frequently observed during periods of economic recession.

The steeper a trendline angle, the less reliable it becomes. When the most steep is broken its best to get out of this trade position. The example expounded & shown below is for oil that has initiated a parabolic pattern. Another example is indices which formed and occurred on the weekly/monthly chart during the period shortly after the steepest line in the crude oil trading chart was broken.

Parabolic Trend - Trendline Tool on Chart Explained

As a trader, if you encounter a strongly directional, parabolic trend moving upward, the recommended action is to consistently add to your long positions, as this significantly increases the likelihood of profiting from that market trajectory. This strategy generally requires no complex supplementary analysis beyond adhering to established trendlines. The critical instruction is to exit the trade immediately upon a breach of the steepest trendline, as reversals in this configuration occur rapidly, demanding quick execution. Ensure, as the trader, that you exit at the precise appropriate juncture, consistent with prior examples.

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