Updating the Momentum Indicator in the Age of Technology
With the advancement in technology, it's now time to change the classic momentum indicator to measure changes in buying and selling volume, not just changes in price. Simply put, a momentum indicator identifies when a market is ready to turn. But why do markets turn? Well, knowing this answer is the essence of speculating. Basically when all the sellers sell the market bottoms or when all the buyers buy the market tops out. Knowing when all the sellers have sold, or all the buyers have bought, is easier with the Better Momentum Indicator.
But as we said in the beginning, we need to measure changes in volume, not price. The traditional momentum indicator has done a great job measuring the decline in momentum, but its fatal flaw – it measures changes in price, not buying or selling volume. Advancements in technology have made timely volume data commonplace, unlike years ago when only the price was available timely.
The Better Momentum Indicator measures waves of buying and selling volume providing you information on when there is a bullish or bearish divergence. In other words, in a downtrend, price is at new lows, but selling volume is also decreasing, setting up for a reversal, and vice versa for uptrends. While looking at a chart of momentum indicator, seeing that a reversal is approaching is the important point, as knowing which divergence signal to pick is tricky. Divergence signals followed by a sell-off or blow-off exhaustion volume resulting in momentum indicator spikes which mark the turning point and change in trend.
Reliability
Better Momentum Indicator is more reliable when used with confirming, non-correlated indicators such as Better Sine Wave and Better Volume. There is a high probability that trades set up when all three signals are lining up. The final trick to identifying high probability trades is using all three tools on multiple time frames.
One strength of the Better Momentum Indicator is that it can use bid/ask volume to calculate true buying and selling. However, not all trading software can provide bid/ask data on weekly charts. When you have this information available, you are able to more accurately predict market trends using the three indicators.
Questions and Answers
Article Tags:
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