If you are looking at how to find out the good momentum of the market then you are in the right place. We have seen many traders who are looking for how to find momentum in the market. For finding a good momentum in the market you need to follow lot of things.
If in the market there is no movement then we will not be able to earn money in the market. Because the market will either stop at one place, it will run up very fast, or it will fall rapidly, hence we need to know the momentum.
If there is no proper momentum within the market then it will not help us in making a proper decision. Because we work completely on the basis of market analysis. Momentum is basically a term used to measure the rapid movement of a security’s price.
Today in this post we will discuss some important points which help in getting a good momentum.
Table of Contents
Price action analysis
To find a good momentum in the market, you should know how to analyze price action. If you don’t know about price action you will not stand for last. You can analyze the price action in the market in different ways such as with the help of indicators, with the help of trend lines and with the help of chart patterns.
The more time you spend analyzing the price action in the market, the more results you will get because it is the foundation of being a trend in the market. If you do not know even a little about price action then you will hardly be able to become a good trader.
The most popular method for analyzing price action is chart reading. While finding momentum in the market, you do not know how to read the chart or are not able to analyze it with the help of any tool. Then maybe you will be able to survive in the market because chart reding is the only way a trader can become a successful trader.
Find the momentum with help of Volume
Volume shows how many people are buying and selling shares within a particular time. If people are buying that security in the market, then we can predict that its price may go upward. In comparison to this, if people are selling it then we can guess that it may go downwards.
Sometimes if there is not enough volume inside the market then we can get trapped inside the market. Because that type of security will either rise suddenly or fall suddenly, we cannot make a good guess in any way.
If you don’t pay attention to volume in trading, you will be in trouble. If there is a good amount of volume in a stock then it will show us that investors are taking interest in the market and they are taking the market upwards. Due to which we can trust it on the particular stock, if there is no volume in particular stock or securities then we cannot trust its reliability, because the stocks traded in low volume often cheat.
Resistance
In the market, the stock continuously forms new highs and pushes back through the resistance. In other words, the resistance refers to a price level there are selling pressure is high and the market comes back from that level.
Because many sellers are sitting above that level, who place huge sell orders as soon as the market rises, due to which the market starts moving back down from the same level. In one sense, this is a very good opportunity for the trader, he can create a sell-side position at that particular level, which increases his chances of profit and the stop loss is also small.
Most of the time momentum appears on the resistance, whenever the resistance is broken in the market. The many traders stop loss and are hit by the market. After hitting the stop loss there is a possibility market can move too fast on that level because many trader convert their position in the buying side.
On resistance, trade has two opportunities to trade. First is trade on reversal second one is breakout of resistance. If you put your trade on resistance you have a small stop loss and a huge reward. If you do trade on the breakout of the resistance maybe you face a false breakout in the market. Sometimes market gives fake signals to traders. So you should do measurements before placing any trade on resistance.
Higher Lows
When the market starts moving in a direction by performing a higher low. We should guess that now the trend has started in the market. At that time a trader can easily catch good trades because trades made within the trend will always give profits.
While guessing the momentum, it is very important for us to analyze the higher values created by the market. In which we can easily catch the movements of the market. If the market is making higher lows far apart, it means that the buying momentum within the market is very strong and we can comfortably take buy side trades.
You can catch higher lows in the market very easily. There are many tools available in the market to catch them. But I would suggest you to use trend line because if we connect one low to another low, then we will be able to predict that the third low will also be formed on the same trend line, which will make it easier for us to take trades.
Buyer pressure
Buying pressure in the market shows that people are buying or selling in that particular security. In whichever direction people trade in large quantities, we will see momentum in that direction.
Buying pressure can be easily measured with the help of candlesticks. In candlesticks, if a candle is closing near to its shadow, it means that it is filled with heavy buyers. People are showing more interest in buying.
Sometimes the buying pressure in the market has increased after news in the market. You should stay away from the market at the time of news.
Pre-market Price action
It plays a main role in showing the momentum. With the help of price action in the market, we can analyze the momentum and predict in which way the market will move with this momentum.
Often people get cheated in the pre-market. The market doesn’t move as per the analysis and study done by traders. Because it is a blind game like one-time cards. In which we can only guess not make any specific decision in the market.
In the pre-market session, we get an idea of which direction the market will move. Sometimes the market moves down after opening with a gap up, which is challenging task for a trader. Trading in the pre-market is risky as it works with sentiment and low liquidity. At the same time, we get limited information from it, which reduces its reliability and makes it difficult to make any kind of trading decision.