All language subtitles for 3. Using Momentum As A Trading Indicator

OK, now that we understand what momentum is, let's now see how we can use it as an actual trading

indicator where we can recognize, buy and sell signals around that.

So it's actually very simple to use and simple to recognize, which makes it a nice indicator.

It's always nice to have indicators that originally appealing and it really helps to kind of confirm

or strengthen your choices.

By the way, if you're using a trading platform, a lot of times they may not listed as momentum, per

say.

They may call it rate of change or an abbreviation of ROIC.

So we see that's momentum.

That's the classic momentum indicator.

We're going to hear later about RSI, relative strength in the index and glass isolator and other types

of momentum indicators.

But this is the core kind of basic one that everything kind of builds from.

So let's learn about that and use it as a trading indicator.

So when you're looking at the part of a chart that you would add onto your regular price chart, actually

usually it's on the top or the bottom when you add it onto your price chart and you would see like this

kind of a little breakout and it would look a little bit different than your regular price chart.

And if you're already looking and see how it might be a little different here, looking at Tesla and

Proctor and Gamble as a couple examples, and you can see they're different because of different stocks,

of course, so different different securities.

But if you look at it, you'll see that the time is still the same oldest time.

It's to the left going to most recent time to the right.

But if you look on the right hand side, what is represented is not price.

That's a real important thing.

You know, Tesla is not selling four point thirty five dollars and ninety four cents and Procter Gamble

is now at seventy six cents.

So what it is, it's not a price, it's a percentage.

And you have a zero line there.

You see the zero line.

And if you're above and below, it's a percentage above and below that price.

And that will tell us things as far as being above and below the price.

So we looked at Tesla there on the top as a thirty five point nine, four percent.

And then we're using a C on the upper leftwards where a rate of change or ROIC.

So as I was mentioning, that might be what you will find on your trading software.

We have it over 10 periods, which is a standard for using for momentum as far as over 10 periods.

And so you might be thinking if you start looking at this and say, OK, what might be important as

far as deciding whether to buy and buy and sell?

Hopefully you're looking and you're thinking, oh, you know, maybe that percentage is important,

how big the percentages is important.

But really what might be important is whether it's above or below the zero line.

Is it a positive number or is a negative number?

And if you are thinking about that already, great for you.

Now, let's talk about that because you're right on the zero line equals the price basically X number

of periods ago.

So in this example, we mentioned we were looking at 10 periods.

So the zero line indicates that we'll give you an indication how much above or below that percentage

was 10 periods ago.

So, again, we're looking at acceleration deceleration.

We're looking at momentum again, not price on the right hand side.

That's the percentage.

So it's the thirty five point nine four.

So the signals that you want to be watching for and we're a mix of visually appealing and easy is it's

a buy signal if it crosses above the zero line is part of signaling an uptrend.

So if you look at Tesla here, you can see crosses below and above the zero line, you know, several

times or a couple of times.

But mostly it stays above that zero line.

So the cross is above the zero line.

It's an uptrend signal and it's a bicycle you'd sell if it crosses below the zero line.

So that's basically signaling a downtrend in the percentages up or down or show you the strength around

that momentum to something that just barely crosses over that zero line, you know, shows that it's

it's an indication you might want to buy if it's going above it, for example.

But the strength of it, if you want to wait to see, make sure to kind of confirm and let it be stronger

to build out your higher above that line would show you more of a a stronger a stronger number on the

ground.

That way, if we look at it, it's pretty simple.

But if we look sometimes that does diverge where momentum and price move in the opposite direction,

maybe ever so slightly.

So if you see that technically both are going in the same direction because momentum is really measuring

speed, it's more a failure to confirm the price move.

It's going a little bit in the opposite direction.

So you see this here in this example, it's above the zero line, which is a buy signal, but it's just

headed the opposite way slightly.

If you look below to the chart, you can see where we've got our candles, just just slightly different.

Might start be going sideways in the price chart.

And you can see the momentum indicators kind of going along with it to a little bit.

It's not a huge example, but it gives you an idea of what you would look like if there was a divergence

going on.

And you can also see that the volume in this example is really steady or low.

So that's the number we would think of volume as a way of confirming things.

So if this was a definite crossing below the line and volume was high, you know, this would be an

example or rising.

Maybe this would be an example where, oh, that sounds like a pretty strong sell signal where this

might not be as strong a sell signal or a change.

You don't go below the line.

You see, it kind of ticks back up a little bit, you know, as far as going up on a little bit of an

uptrend after we get outside that little red rectangle Borallon, but then it starts going down from

there.

And as you see it go down to the right, you'll see how it's now crossing below the zero line up above

in the momentum indicator.

And that's what we're looking for, is when it crosses below, we want to sell and get out before it

goes down further is the idea here.

You can actually see there's a breakaway gap in here.

So you can see the breakaway gap, as we remember from the gap, than a jumped way up.

Of course, price overcame the range of the previous, in this case days and could be minutes, hours,

whatever you're trading ranges, but with six days.

So you see, you had a breakaway gap that was then reinforced with a little bit of a pullback there

after two days, but then only for a couple of days.

And then a strong trend going forward.

And you can see how that the the momentum indicator crossed is above the zero line right around that

same time and then starts reinforcing that.

So that's another way you can use to help reinforce that maybe a breakaway gap is really something that's

going on.

In fact, if we look at a little bit closer here, you can see that not only is the momentum kind of

confirming it, but also we have our volume is another confirming measure so we can look at this and

apply some of our different lessons and say, I've got a breakaway gap.

I waited for it to develop because you want to make sure the trend develops.

I did that.

So for me or for you and the momentum indicator is rising above the zero line, then certainly going

well above it.

So it's kind of confirming that in the volume going from some very, very low volumes, very low volumes

right before it kind of confirmed it.

So if you see that, you've got really basically three indicators kind of confirming each other, particularly

in something like a breakaway gap, which we know a breakaway gaps are designed to lead to higher,

strong trends.

Right.

So that's a that's a strong indicator showing a strong trend going forward.

So at this point, it should be very happy.

Yeah, that's a good, strong indicator.

Confirmed three ways and nothing's perfect.

But that's a really good, strong indication.

You would have came across, you know, confirming it with a multiple different things beyond just the

breakaway gap, which might have been your primary indicator.