How to Use Price Action to Identify Momentum

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How to Use Price Action to Identify Momentum

Have you ever got in the market a little too late, or exited a little too early? Do you remember what was on TV or cover of the news when you did that? Why do most people feel more comfortable buying when the market has reached its top, or selling at the lowest low, while it has to be backwards?

Today’s video reveals one of the most important techniques you need to know in order to accumulate wealth by trading — any kind of charted trading. Watch today’s video now to get the answer to the $7 million question.

From the New York Stock Exchange my name is kiana danial they call me invest diva, the go-to investing advisor who helps you make extra money. It’s time for this week’s Q&A Friday and today’s question is from an Invest Diva user called, Nubbins, and Nubbins writes:

I’ve always wanted to know how it is possible to tell whether or not momentum is slowing down by looking only at price action.

Excellent question. Let’s first start with the definition of momentum based on our Forex dance floor analogy. The currency pairs are dancing on the dance floor, and momentum is the direction in which they are moving. There are only three basic directions that the pairs move: up, down and sideways, so nothing complicated so far.
The idea of momentum in is that the price is more likely to keep moving in the same direction than to change directions. Many traders use indicators to help them identify trends, but there is a very empowering method, just by looking at the price action as well.

If your desire is to become a talented Invest Diva, or Invest Divo and an accumulator of wealth, you must strive for entering a position at the bottom of the market, and get out at the top of the market, or vice versa if you are bearish. This is all possible by identifying the momentum, and finding the answer to the $50,000 question: ”what is low, and what is high?” It might sound so ABCish, but that is essentially the mother of all kinds of trading.
The price action of the market, or how we call it, the dancing moves of the currency pairs, has a wealth cycle which looks like an inside down cup, or a bell.

This is what the market experiences over and over again. And guess what, it has no choice, and no ability to change. Think about this for a moment. It has no ability to change. The market will NEVER create a different cycle. It has different versions of the cycle. It has different styles of the cycle, but essential it’s this cycle going over and over again.

The middle of the bell shaped cycle can’t be decided unless its ended. The hardest part to decide is when you’re halfway. At the top its where it gets very volatile, and gets people excited and scare them. Now to answer your question, how to tell if the momentum is slowing down by looking at the price action, let’s break this cycle down into 4 phases.

Stage 1: Bottom. That’s when the market is born, and if you zoom in to shorter time frame charts, you will normally notice a sideways consolidation and slower pace of dancing moves

Stage 2: The bull side of the market, and the trend or momentum is up. Keep in mind that this can happen in any time frame. Hours, days, weeks, or 7 years. There are of course micro cycles, and there are big giant wealth cycles. But looking at the big picture, stage 2 is the up stage.

Stage 3 is your top, and that’s most people get fooled by the covers of the magazines and TV reporters who start making noise. They have finally noticed the momentum but it’s a bit too late!

Stage 4 is the bottom leg, and then we are back to 1.

A quick pointer for very long term traders: The average duration of a bull market is 5-6 years. The average duration of a bear market is 2 years.
Your job as a price action trader is identifying Tops and bottoms which are not are normally not easy to identify, but at Invest Diva we have created over 50 animated education videos presented by me, only about identifying patterns, so get your bones over to our Learn to Earn page and start learning trading the right way.