The momentum of this train will crush you or carry you
You’ve seen the pictures of a crumpled hunk of metal that used to be a car. It was sitting on the tracks when a train came through. Within seconds a vehicle, and often lives, are destroyed. The train tried to stop but its momentum just carried it right through the car in its path.
It could have been easily prevented by not trying to beat the train in the first place.
This happens with your trades too…
Have you ever found your trades sitting on the tracks of the futures market watching that market freight train approaching? You can hope it will stop this time; but hoping won’t save your trading account. The catastrophe about to occur could have been prevented by not getting in the way of the market train in the first place.
There is one major difference between this market train with its momentum and the freight train that hit the car. The market train will not even try to stop. As a matter of fact, it will hit the throttle full speed.
What creates price momentum in the market?
Heavy order volume coupled with imbalances between buyers and sellers will always be what drives the price of any asset in the market. Once a market starts to move strongly, anxious retail and professional traders can join the fray and add additional momentum.
But, it is not the professional and retail traders that create the initial nor the sustained price momentum in the futures markets. They simply do not generate enough order flow to do that. That momentum is always created by the high volume demand of the institutions.
Retail traders who fail to be aware of the cause and direction of price momentum in the market will get run over by it. The only difference between their trading account and the car hit by the train will be that the train tried to stop.
How do retail traders avoid being crushed by price momentum?
With an understanding of what creates and pushes the price momentum in the market, we can learn how to avoid being run over by it.
If you are driving your car, you certainly aren’t going to park it on the railroad tracks. When parking your trades in the market, just don’t place them in front of the institutional price momentum.
Most of today’s trading systems come with a momentum chart that will display the price momentum under the price chart of an asset.
Any good trading system will allow you to display an asset chart with the price momentum underneath it. This allows you to ride with the price momentum in the market without getting run over by it.
Retail traders can watch the price momentum on their screens and use a change of direction as a warning signal that a change of direction is approaching.
How can a tool using past data protect my account from future losses?
It is important to recognize that the price momentum is only providing you with a graph of what has already occurred in the price movement. It will not signal you to take action in advance of a change in direction of an asset price.
There is no tool that can consistently pick tops and bottoms in markets. The price momentum tool is useful in terms of helping retail traders identify attractive entry and exit points for trades.
You don’t have to be able to pick exact tops and bottoms when you can catch the majority of most price moves. Using the price momentum tool will certainly help you accomplish that.
Don’t get hit by the price momentum train of the market… ride it instead!
It is easy to monitor the market price momentum. Once you can see where it is heading, it is also easy to make sure you keep your trades out of the way. This will keep you from getting crushed by the moving train of the market.
Retail traders must keep in mind that the institutions will not try to avoid crushing their accounts. Just the opposite — they will do everything they can to do just that. But you can’t eat a lack of losses. You need profits as well.
Using price momentum as one of your trading tools can help show you how to get on the train of market momentum instead of being run over by it. Then, to borrow a line from the Marshall Tucker Band, you’re “gonna ride a southbound. All the way to Georgia. ‘Til the train it run outta tracks.”
Best of all, this set of tracks ends at your bank.