Minor Structure + Momentum: Part OneWhen analyzing momentum, the most important question to consider is: Where should I focus my analysis of momentum?
Many traders often find themselves confused by the concept of "momentum" as they try to derive meaning from every single candlestick movement.
The straightforward answer is: Analyze momentum when the price is at key levels or is getting close to them! In particular, for minor structures (trends), you should pay close attention to momentum near the 13 and 20 EMAs, as we do in ARZ Trading System.
Keynotes: a minor trend is still valid, if these two key points are continuously happening:
1. We always expect a loss of momentum for price when approaching the key levels, and gaining momentum when it's moving away from them, in the direction of the trend.
2. A very important sign of gaining momentum is crossing and closing the whole previous candle(s).
Let's analyze this chart:
- It is obvious that candles #1 to #3 are showing a loss of momentum, but they are far from key levels and it just might mean a retracement, which happened. But again it might not retrace at all!
- from #3 to #4, we see price is gaining momentum, which is not good! so both key levels could easily break, which happened. But again in #5 and #6, we see the price losing momentum in the opposite direction of the previous downtrend, and gaining it in the direction of the minor downtrend. so everything is good.
- Again #7 confirms the momentum in the direction of minor downtrend.
- In retracement up until #8, the price is gaining momentum upward, which is not good. But candles #9 through #10 again are in our favour.
- the correction to #11 is not looking good for a downtrend, and in the next candles, to #13 we are not convinced that sellers are stronger. So, we are cautious here. And the price finally gains momentum upward and we reach #14.
- From #15 to #16, momentum is the same for both buyers and sellers. It is a tight range and can do nothing until we see a clear sign of gaining momentum (or losing) in one direction. And the sign came in the shape of candle #17. If this tight range were to continue, it should have been a bullish strong candle.
