2. PRINCIPLES OF MOMENTUM

3. MOMENTUM IS ONE OF THE MOSTLY USED TECHNIQUES OF TECHNICAL ANALYSIS BUT THE LEAST UNDERSTOOD. MOMENTUM MEASURES VELOCITY OF A PRICE MOVE YOU CANNOY BUY AND SELL MOMENTUM, YOU CAN ONLY BUY AND SELL THE PRICE

6. THE 5 MOMENTUM PRINCIPLES TO BE COVERED TODAY ARE : 1.OVERBOUGHT/OVERSOLD 2.DIVERGENCES 3.TRENDLINE VIOLATIONS 4.PRICE PATTERN COMPLETION 5.MOVING AVERAGE SIGNAL

7. BUY AND SELL SIGNALS CAN ONLY COME FROM A REVERSAL IN TREND OF THE ACTUAL PRICE, NOT A REVERSAL OF THE MOMENTUM SERIES. MOMENTUM’S VALUABLE CONTRIBUTION IS TO TELL US WHEN THE UNDERLYING TECHNICAL STRUCTURE IS WEAKENING OR STRENGTHENING

8. OVERBOUGHT/OVERSOLD

12. WHEN AN OSCILLATOR TENDS TOWARD THE UPPER PART, IT IS SAID TO BE OVERBOUGHT.

13. WHEN AN OSCILLATOR TENDS TOWARD THE LOWER PART, IT IS SAID TO BE OVERSOLDS..

14. LEVELS TO TAKE PROFITS OR REDUCE YOUR EXPOSURE

16. News See IndustryAnalyst EstimatesSEC FilingsBroker ResearchInsiders OVERSOLD BOEING OVERBOUGHT

17. OVERBOUGHT AND OVERSOLD LEVELS ARE OPPORTUNITY POINTS TO ANTICIPATE A TREND REVERSAL RISING PRICES, OPTIMISM AND « SCREAMING NESWPAPER TITLES » ARE INCENTIVES TO PURCHASE : THE OPPOSITE SHOULD BE DONE !

19. IT IS MORE FAVORABLE TO WAIT UNTIL THE OSCILLATOR HAS CROOSED THE UPPER BOUND A SECOND TIME

20. Cisco WAIT ‘TILL IT CROSSES AGAIN…

21. News See IndustryAnalyst EstimatesSEC FilingsBroker ResearchInsiders OVERSOLD BOEING OVERBOUGHT

22. YOUR PURCHASE PRICE IS LOWER WHEN WAITING FOR THE SECONG CROSS OF THE LOWER BOUND

23. SHORT-TERM CHARTS : SHORT-TERM OSCILLATOR LONG-TERM CHARTS : LONG-TERM OSCILLATOR

24. IMPORTANCE OF AN OVERBOUGHT/OVERSOLD READING WOULD DEPEND ON THE TIME FRAME UNDER CONSIDERATION

27. OSCILLATORS THAT MOVE IN THE DIRECTION OF THE PRIMARY TREND NOT ONLY TEND TO REACH MORE EXTREME READINGS, BUT MAINTAIN OVERBOUGHT CONDITIONS LONGER

28. GRAPH DRAWING TIME !!!

29. WHAT ARE DIVERGENCES ?

30. IN THE DESCRIPTION OF OVERBOUGHT/OVERSOLD CONDITIONS, WE ASSUMED THAT THE OSCILLATOR PEAKS AND TROUGHS AT ROUGHLY THE SAME TIME AS THE PRICE MOMENTUM TURNS AHEAD OF THE PRICE

32. MAXIMUM VELOCITY AS IT LEAVES THE HAND

33. REDUCES SPEED AS IT LOSES ITS MOMENTUM

34. …REACHES A NEUTRAL POSITION WHEN IT REVERSES…

35. …STARTS GOING DOWN AGAIN…

36. …ACCELERATES…

37. …AND FINALLY RETURN TO A NEUTRAL POSITION

38. WHAT MOMENTUM OSCILLATORS TRY TO DO IS TO MEASURE THIS ACCELERATION AND DEACCELERATION FACTOR

39. POINT A REPRESENT THE POINT OF MAXIMUM VELOCITY Oscillator chart Stock chart

40. …THE PRICE CONTINUES TO RALLY AT A SLOWER AND SLOWER PACE UNTIL POINT C Stock chart Oscillator chart

41. THIS CONFLICT BETWEEN MOMENTUM AND PRICE IS KNOWN AS DIVERGENCE SINCE THE OSCILLATOR IS OUT OF SYNC WITH THE PRICE

42. IT’S CALLED NEGATIVE DIVERGENCE BECAUSE RISING PRICES IS ASSOCIATED WITH DECLINING MOMENTUM

43. THE DECLINING MOMENTUM IS ANNOUNCING A DETERIORATION OF AN ONGOING TREND IN ONE RESPECT, MARKETS ARE LIKE HOUSES: THEY TAKE MORE TIME TO BUILD THAN TO TEAR DOWN

44. MOST MARKET BOTTOMS ARE PRECEDED BY AT LEAST ONE POSITIVE DIVERGENCE

45. News See IndustryAnalyst EstimatesSEC FilingsBroker ResearchInsiders

46. CHART DRAWING TIME !!!!

47. RULES FOR INTERPRETING DIVERGENCES

48. THERE ARE 3 FACTORS THAT HELP ESTABLISH THE SIGNIFICANCE OF A DIVERGENCE : 1.THE NUMBER OF DIVERGENCE 2.THE TIME SPAN SEPARATING THEM 3.THE CLOSENESS OF THE MOMENTUM READING TO THE EQUILIBRIUM LEVEL AT THE FINAL TURNING POINT IN PRICE

49. THE MORE DIVERGENCES THERE ARE, THE GREATER THEIR SIGNIFICANCE

50. A SPECULATOR WOULD BE INTERESTED IN A ST TREND

51. 4 DIVERGENCES IN A LT CHART HAS MORE EFFECT THAN 3 IN A ST CHART AS THE ONE BEFORE

52. THE IMPORTANCE OF DETERMINING THE LEVEL AT WHICH THE LAST DIVERGENCE TAKES PLACE

53. OSCILLATOR AT THE EQUILIBRIUM POINT CORRESPONDING WITH MARKET PEAKS ARE GENERALLY FOLLOWED BY STRONG MARKET DECLINES.

54. THIS IS NOT A RULE BUT WHEN THE TRENDLINE VIOLATION IS CONFIRMED, IN ADDITION TO A LOW DIVERGENCE, A STRONG DECLINE FOLLOWS.

55. …SAME FOR MARKET BOTTOMS.

56. DIVERGENCES MUST BE CONFIRMED BY A TREND BREAK IN THE PRICE ITSELF DIVERGENCES MUST BE CONFIRMED BY A TREND BREAK IN THE PRICE ITSELF WHEN I TALK OF A CONFIRMATION BY THE PRICE, THE TREND BREAK CAN COME IN MANY DIFFERENT WAYS : TRENDLINE VIOLATION MOVING AVERAGE PENETRATION PRICE PATTERN COMPLETION

57. TRENDLINE VIOLATION MOMENTUM, LIKE PRICE, MOVE IN TREND. KEEP IN MIND THAT A TREND REVERSAL IN MOMENTUM IS USUALY ASSOCIATED WITH A SIMILAR REVERSAL IN THE PRICE ITSELF.

58. THE ANALYSIS OF AN OSCILLATOR WILL ACURATELY TELL US THAT THE MOMENTUM HAS REVERSED, AND A REVERSAL IN PRICE MAY SOON FOLLOW HOWEVER, THE LAG BETWEEN THE SIGNAL OF A REVERSAL IN MOMENTUM AND THE ACTUAL TURNING POINT IN PRICE MAY BE SO GREAT THAT TRADING DECISION BASED ON THIS SIGNAL WILL BE UNPROFITABLE. THAT IS WHY IT IS IMPORTANT TO WAIT FOR A TREND REVERSAL IN THE SCEURITY ITSELF

59. WHO CAN INTERPRET THIS FOR ME ? BUY AT "A" OR AT "B" ? A B

60. CONFIRMATION OF PRICE PATTERN FORMATION

61. PRICE FORMATIONS DO NOT OFTEN OCCUR IN OSCILLATORS, BUT WHEN THEY DO : GET READY !

64. PRICE PATTERN IN MOMENTUM INDICATORS TAKE THE STANDARD FORMS: TRIANGLES HEAD AND SHOULDERS RECTANGLES TRIPLE TOPS ETC…..

65. …HEAD AND SHOULDER FORMATION…

66. MOVING AVERAGE SIGNALS FOR MOMENTUM

67. MANY TECHNICIANS OFTEN PLOT 2 MOVING AVERAGES.

68. A--  buy signal B--  sell signal

69. THANK YOU…..