Price Action Momentum Trading.

Price Action Momentum Trading.

Source: How I Trade for a Living by Gary Smith

Patterns:

• V Bottom Upside Reversals - downtrend or previous day down followed by a
down day with a late upward surge.
• Late Day Upside Price Surge - previous day down followed by a down day with a
late upward surge in the last 2 hours closing ½% up on previous close.
• Extreme Momentum Days - a big forward movement can presage continued
momentum.
• Friday–Monday Momentum – stronger than average strength on the Friday often
leads to continuing strength on the Monday.
• 1% True Selling Day – 2 weeks+ of a rising trend followed by a 1% drop on most
of the indices.
• Divergence Patterns – in the indices.

Indicators:
1. Sentiment.
2. Technical:
• Increased percentage of new 52-week Highs.
• Advance/Decline Line where Index decreases but A/D Line rises.
• Triple Witching Weeks can lead to price increases. Stock options, stock index
options and stock index futures expire on the third Friday of March, June,
September and December. If these traders have been bearish (e.g. heavy put
buying in the weeks leading up to expiry), the unwinding of their positions tends
to lead prices up.