Article on Momentum.....comments please ?

syswizard said:
http://www.marketwatch.com/story/momentum-waves-caution-flag-for-stocks-2016-09-16
These types of analysis can be useful, but other things, like Fed meetings and announcements can make them totally meaningless.
I mean we could explode to the upside next week depending on what the Fed says....
who feels the same way ?
More...

Momentum in trading is a difficult concept. "Jumping on the bandwagon" and having the market race in the direction of your trade is terrific. But what about when the market starts to correct or has actually made a change in direction?

"Momentum" to me seems to be one of the excuses to holding onto a position currently going against you. I.e., "The market is going down right now against my longs, but I'm holding because of (perceived) upside momentum".

How do you know that when you're suffering the benefit of the doubt that you're acting correctly? How much of a counter move to your position can you tolerate and still justify it as "because of momentum"? I dunno... I have no answers.... except to say I never rationalize "momentum" as an excuse to hold a position currently moving against me.
 
I agree with the above but only to a degree. To my mind trend is the overall movement of the market and momentum is the individual up and down moves that make up that trend. If you look at any chart you can usually identify the highs and lows and the moves in between those highs and lows are the momentum moves. If the market is trending up then the lows will be progressively higher and vice versa for down trends. Get some probability behind you and buy at the start of the momentum moves in up trends and sell at the start of momentum moves in down trends. Of course knowing when these moves are going to start and end is the tricky bit! You can overcomplicate it with indicators and other woolly thinking but it's all just a game of probability and keeping your losses small and your winners bigger. (that's a view from a confirmed trend trader. Of course there are many, many ways to skin a cat)
 
Momentum is simply a statistical bias. Nothing less ... Nothing more. Worldwide indexes have an upward momentum. If you run simulations of a coin toss, with similar payoff btw head and tail then you'll see variations (Variance) around the mean. This is not momentum ... It's volatility !!! Pick a TF then see but beware of statistically insignificant inductions.

Or it could be mechanical instead of statistical =D Positive feedbacks or Reflexivity (à la Soros). Livermore had a nice way to define it by sending orders both @ Bid and Ask then looked for the more sensitive side. Eventually it later broke toward the softer one. But it has actually nothing to do with Positive feedbacks.
 
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syswizard said:
http://www.marketwatch.com/story/momentum-waves-caution-flag-for-stocks-2016-09-16
These types of analysis can be useful, but other things, like Fed meetings and announcements can make them totally meaningless.
I mean we could explode to the upside next week depending on what the Fed says....
who feels the same way ?
More...
Momentum is the physics fact that when you let roll a ball in a U-shaped ramp, ball tends to accelerate then decelerate, then reverse, accelerate, decelerate, reverse... thanks to his kinetic energy.
Stocks price are quite the same. They need volume and buying pressure in order to accelerate. Less buying pressure... flattening, trading range. No more buying pressure : reversing, fall.
This is why momentum strategies are one of the best for good scalpers and day traders.
Because reward/risk is maximum on a short term basis if you enter at the beginning of the acceleration and take profits during deceleration.
Only unexpected event can break momentum during acceleration. It is physics :finger:.

Majority will generally enter before acceleration (anticipation, impatience) or at the end (frustration, "follow the herd" mentality).

CM
 
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