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Date of Entry : 2015-06-28
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Hybrid Momentum and Divergence

on Sat Nov 05, 2016 8:23 pm

Directional Bias is just one of the main indicators we look for when trading the futures market. Market Momentum is a curious thing. Some Market analysts say that momentum in the markets is an anomaly caused by irrational investors. As price rises, other investors feel the need to jump in on what appears to be upward movement. This, in turn, causes prices to rise higher. This will continue until this price bubble “pops” and your price will then begin the downward cycle. The big market makers know all about this and will use directional bias to confirm entry and exit positions. But, if you don’t know what to look for or are unable to identify the movements correctly, you may find yourself trapped on the wrong side of the market. But how do you identify it? What do you look for?

To determine the directional bias, you’ll need to look at these 4 key indicators:
1. Confluence vs. Non-Confluence – We look to combine MACD and Velocity Cycles for measuring 2 separate forms of momentum data. When the histograms and the MACD work together there is a state of confluence. When the oscillators separate we find ourselves in a state of non-confluence.
2. Divergence – This usually refers to price direction in comparison to indicator signals. Divergence is measured as being ―positive‖ or ―negative‖. If the indicator is moving up while the price is moving lower, this is positive divergence and could indicate a move up in future. If however, the price hits a new high while the indicator fails to follow it, we call this ―negative‖ divergence. This could indicate a move down in future price.
3. Fake-Outs or False Moves – This normally happens in a state of transition or oscillating market conditions. Some traders refer to this as choppy markets or just a time to sit back and be patient. We can avoid unnecessary stop outs or losses by using the VeleocityMomoDIV to identify fakeouts.
4. Price Exhaustion – Most traders find it more efficient to trade with the market than against it. We measure price exhaustion by mapping out overbought and oversold conditions so that as directional traders were not trading into harmful areas or reversal patterns. In conclusion, there are several aspects to being a directional trader. As a trader, you must look at multiple signs to determine when and where to take the next trade. Knowing what areas to look at will greatly decrease the amount of time spent “shooting blind” when you trade.

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