Info!! Momentum Inwards The Market: Merchandise It Or Fade It?

A tendency twenty-four hours is basically a twenty-four hours amongst momentum on the twenty-four hours fourth dimension frame.  The buyers or sellers in addition to hence dominate the marketplace activeness that the other side backs off for the ease of the session.  That is what nosotros saw inward yesterday's trade:  1 time nosotros broke to novel highs amongst pregnant uptick readings, the buyers remained inward command for the session.  I honor it useful to rails the distribution of NYSE TICK readings during the trading twenty-four hours to position when nosotros convey made pregnant shifts inward buying/selling in addition to when nosotros are extended inside a relatively static range.  That shift of distribution frequently makes the difference betwixt trading push clit or weakness versus fading it.

The momentum regulation is truthful on longer fourth dimension frames equally well.  Yesterday's post took a await at the absence of marketplace weakness equally an indication of potential hereafter marketplace strength.  Now let's await at the presence of marketplace strength, such equally nosotros saw inward yesterday's session.  Does that tend to Pb to hereafter weakness equally an overbought signal, or does it tend to yield farther gains equally business office of momentum?

If nosotros rails the unwrap of NYSE stocks closing to a higher house their private Bollinger Bands in addition to those closing below, nosotros honor that 412 unopen to a higher house their bands.  That is a huge number; 1 of the highest since I began aggregating these information inward 2014.  For comparison, since 2014, the median unwrap of stocks closing to a higher house their bands each twenty-four hours has been 62 amongst a measure divergence of 69.  We've had 48 occasions over that menstruation inward which to a greater extent than than 200 stocks convey unopen to a higher house their upper bands inward a trading session.  Five sessions later, the average toll alter inward SPY has been a loss of -.13%, compared amongst an average gain of +.15% for the ease of the sample.  When nosotros await 20 days out, however, the average gain inward SPY after the strong session has been +.96% versus an average gain of +.49% for the ease of the sample.  While it's been normal to convey approximately near-term pullback after extreme strength, it's also been mutual for the push clit to resume.

The marketplace spends much of its fourth dimension trading inward a range.  During that arrive at trade, past times Definition the moves higher in addition to lower lack the momentum to hold upwards sustained.  The best trading strategy is to recognize the loss of momentum in addition to fade the push clit or weakness.  Once nosotros expand buying or selling, however, nosotros tin croak the breakouts from ranges inward which push clit or weakness leads to farther push clit or weakness.  We lose flexibility when nosotros position ourselves equally arrive at (mean reversion) traders or tendency (momentum) traders.  One of the bang-up challenges of trading markets lies inward recognizing shifts inward buying in addition to selling regimes.

Further Reading:  Tracking Institutional Participation inward the Market
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