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That’s what Better Momentum does – that’s why it’s a “better” Momentum
Indicator – plus it generates demand and supply signals. It’s one of my 3
non-correlated indicators. The other 2 are Better Sine Wave (measures
price) and Better Pro Am (measures average trade size).
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Markets bottom when all the sellers have sold (i.e. selling volume
dries up)
Markets top out when all the buyers have bought (i.e. buying volume
dries up)
The next logical question then is “How do I know when all the sellers have
sold or all the buyers have bought?” And that’s where measuring volume
momentum comes in.
Let’s take the example of an uptrend. The move starts off with an explosion
of buying that takes the market past a significant resistance level. In the
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early part of the move Professionals, large volume traders are active. On
any dips the buyers step back in and continue to drive the market higher.
Eventually, a point is reached when all the buyers have bought. The market
tops out and price starts to reverse. Sometimes we move straight into a
downtrend. At other times we get a final blow off buying climax –
Amateurs desperate to finally get on board. But the trend has changed and
it’s now time to exit Long positions and Short.
The chart above is a 2,097 tick bar chart of the Emini and highlights two
reversals. The bottom was formed when a new low was made but the
selling volume (as shown by the Better Momentum indicator) dried up.
Similarly, the top was formed when a new high was made but the buying
volume dried up. The red and white dots on the indicator and price bars
indicate when buying and selling starts declining.
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In years gone by, the only timely data traders had available was price.
Volume data was either not available or was delayed. But times have
changed. My data feed not only tells me the volume of every single trade,
but whether it took place on the bid or the ask! Extraordinary, really. So
let’s make an improved Momentum indicator.
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That is, in a downtrend, price is making new lows but the selling volume is
becoming less and less – setting up for a reversal. And vice versa for an
uptrend.
The chart above is a 699 tick bar chart of the Emini and shows the Better
Momentum indicator (volume based) along side the traditional
Momentum indicator (price based) with the same settings. As you can see
for the highlighted turning point, the Better Momentum indicator correctly
identified fewer sellers participating in the move and a likely reversal. The
traditional Momentum indicator totally missed that a turning point was
being formed.
You need to wait for at least the First Bullish or Bearish divergence signal
to plot before entering a reversal trade. And in some cases it is necessary to
wait for the Flush volume pattern to signal – showing that the last of the
sellers or buyers have been “flushed” out of the market and the trend can
now reverse with little resistance.
Note: The Better Momentum signals plot in real-time on the price bars.
But the signals are back-plotted on the momentum line itself. This is to
show the peak or valley in momentum that actually generated the signal.
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The best way to use the Better Momentum indicator is with confirming,
non-correlated indicators. Since the Better Momentum indicator is
measuring waves of buying and selling, I use price cycles and average trade
size as my confirming indicators.
High probability trades set up when you get all 3 signals lining up. For
example:
The last trick to identifying high probability trades is using these 3 non-
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correlated tools (Better Momentum, Better Sine Wave and Better Pro Am)
on multiple time frames.
Summary
This article should have convinced you to:
BUY NOW
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