Momentum

[shoikan]

Hey Eric/All,

I had a question about momentum and was wondering if anyone could share some feedback.

When I see a bar that breaks the previous bar and then closes on its low or high with could consistent building of momentum til the close (if context makes sense/setup) I'm usually looking to enter.

I've had many occurances where the bar after the perfect bar doesn't immediately break my perfect signal bar. Sometimes it'll retrace half or more of the signal bar before eventually breaking in the direction of interest. When I see this behaviour (specifically 50% retracement) I typically lose interest in the trade as I feel momentum waivered.

I'm curious if anyone else has noticed this? Do people still enter because the bar previous closed strong? I find the bar just kinda waffles up and down with no real direction.

I attached a random picture just showing a bar that did similarly for a visual.

This isn't a trade or anything just a question about momentum and it carrying through.

Thanks in advance,
Shoikan

[Marco]

Many times you will see a bar forming like this (perfectly). The following bar is going lower to let traders in and it will reverse immediately. I am curious how it played out after your screenshot's last bar.

Perfect-finished bars are fooling traders, that's why we want to wait and focus on them appearing at our KEP / EMA. At your screenshot, the bars are in no man's land so there is a high chance it will snap back to the EMA.

In general, you can observe when bars finish perfectly like this the following bar is carrying over the momentum in 70-80% of the cases. That is why a good signal bar with a good context is golden.

[shoikan]

It pretty much went 3 ticks before snapping back to the ema (as expected).

What if that bar was off of a KEP or even a combination of trend channel (multiple touches on both sides) and EMA but still pulled all the way back to the previous bars close (no prior congestion) before eventually breaking forward? Would you still take it?

I cant shake the 50% retracement of my signal bar before it triggers.

[eric-pal]

Nice observations Marco!

What is being observed here is also known as the "magnetic effect". If there is a support which is far away from a given "average price" (or ema), why buy if you know you can buy lower?!!! Right, so bulls will pull their orders, the bearish momentum will race down towards support (creating a perfect bar), and then WHAM - prices turn around!

This is why bar observation is a critical aspect and not simply "what is printed statically at the end of the day". Bar motion matters, and that is part of the observation skills which are outlined in the course. Magnetic pulls (most of them) have a signature to them - a sudden rise or drop to support or resistance).

Hopefully helpful and good trades to you!

[chasetrades]

Eric, what you say seems to perfectly explain something I've observed lately with price action. I'll notice price action will often suddenly overshoot a channel into a supply/demand zone and then rebound immediately in the opposite direction. Is this in line with what you are talking about?

[eric-pal]

Big smile. When you understand where traders are placing stops and entries, it opens up a new world as targets such as measured moves become better understood, as well as why prices seem to turn in specific areas.

Not so random anymore [noted that surprises still happen]. Also, the meaning of traps takes on more significance because things that "should have happened" do not, so a side is trapped.

Good trades to you!

[chasetrades]

I’m mind blown. I’ve been seeing this and just kept noting it hoping one day to understand what’s going on…And voila! Thanks Eric