July 14th, 2008
We must be aware about the trade in which we can earn a huge profit but it is made complete only when we have know the trends of the business because trends plays an important / major role is assessing inclination power. Any tendency is poised of a series of price swings. We must be aware the up and downs in the trend of business when these trends are going up and down. It is not necessary that a less impetus will always result in reversal but we can be aware of the fact there is something in the market which is getting changed and that trend may consolidate or reverse.
Direction and magnitude of the price is determined by price momentum. It is very much necessary for a trader to gain insight into the price momentum. A trader can gain insight into the price momentum by comparing price swings. We will let you know how to evaluate the price momentum. Any deviation can let you know that in which direction trend is going on.
Defining price Momentum
With the help of short term price swings we can calculate the magnitude of the price momentum. Structural price pivots defines the beginning and end point of each swing. With the help of these beginning and end point we can know the swing high as well as swing low respectively. Momentum can strong or weak both. With the help of vertical slope and extended price swing we can see the strong momentum while to know about the weak momentum we will require the superficial slope.
If the upswing is in uptrend then we can know easily that a long upswing is showing the increased momentum. Or in other words we can say that it is getting stronger while if the swing is shorter then it can be assume that trend is going to be weak but if length of swing does not change it means momentum will remain same and will not change.
By normal eyes we can not evaluate the price swings it can be choppy. With the help of momentum indicator you can get a clear picture of price action. A trader can also compare the indicator swings to price swings with their help and he will not have to compare price to price.
Momentum indicator
The price movement momentum indicators include the relative strength index (RSI), stochastic and rate of change (ROC).
Momentum Divergence
If there is some discrepancy between the indicator and price we call it divergence. For a trade management system this divergence can have important implications. The amount of agreement and disagreement is relative. There for pattern are not same. These patterns are developed in the relationship between indicator and price.
If you want to make the analysis of momentum valid then you have to keep i mind that strength of price swing must be sufficient. So we can say that in active trends momentum is useful very much but in every condition when there is condition of price swings are limited and are of variable length then this does not work properly.
pic. 1 RSI Divergence signal example
pic.2 Price and RSI indicator agree
When price makes a higher high but this higher high does not made by indicator then only this divergence come in uptrend. And in case of down trend it happens opposite to the up trend. A probability of price retracement increases very much if divergence is spotted.
Momentum Divergence Indicator -shows fractal divergence by Momentum MetaTrader 4 indicator .
The trader can distinguish and respond appropriately if there is any change in price action with the help of divergence. When there is some changes it inform us and indicate the trader to take some action for his trade, such as tighten the stop loss or take profit.
Managing Divergence
For trade management divergence is very much necessary. Some of the fine strategies were selling call option or taking profit. The trend was first pullback and then continued which was leaded by the divergence between the price and the indicator. Price makes below the lower trend line if you look at the pivot, often it also offered as a bear trap.
It is not necessary that trend will reverse when divergence indicate that something is changing. It is just to inform the trader that he must consider strategy option: holding selling a covered call, tightening the stop, or taking partial profits.
Profit is not too much important as ego for the glamour of wanting to pick up the top as well as bottom. We must first select the right strategy for what price is doing if we want to earn a profit continuously.
Disagreement or divergence can be considered when price and the indicator are not regular relative to each other. Our actins are only controlled regardless of what price will do.
It does not mean that a divergence can not reverse the trend. A divergence sometimes also leads to the trend reversal. If we would be able to understand the momentum easily then we can earn a huge payment by trend momentum.
Conclusion
We must be aware of all the available strategies to use a momentum indicator in a useful way. Way can be leaded by price but if you want to preserve the profits then this can be indicate by the momentum. If you are a professional trader then you must have the knowledge of correct strategies for price action.
Our Metatrader Divergence Indicators
STO - Div Metatrader Indicator shows fractal divergence by Stochastic indicator .
RSI-Div Metatrader Indicator shows fractal divergence by RSI indicator.
PowerRVI-Div Metatrader Indicator shows fractal divergence by PowerRVI indicator.
Metatrader Indicator STLM-Div indicates fractal divergence by STLM Low Frequency Digital Filter.
Metatrader Indicator MACD-Div indicates fractal divergence by MACD indicator.
BJF Trading Group
www.iticsoftware.com
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). Let’s make an attempt to test the system on the different areas of quotations (currency of EUR). The initial lot is = 0, 1.
