Momentum Trend Trader

Momentum Trend Trader
This e-book is not to distributed, copied or sold in

whole or in part in any manner. It is for your personal
use ONLY.
Publisher: Momentum Trend Trader
Author: Orville Saari
Email: info@momentumtrend.com
Website: www.momentumtrend.com
Copyright © 2003 Orville Saari All Rights Reserved

Risk Disclosure
Trading whether its futures, forex, options, or stocks
offer a large potential for return but can also a large
potential risk and loss. The information in this e-book
is not an offer or recommendation to buy or sell any
trading vehicle.
Samples shown are for illustrative, educational and

informational purposes only and not a
recommendation to buy or sell.

Introduction
The purpose of this e-book is to introduce you to the
Momentum Trend Indicator.
To learn what it is based on.
How to better understand how the indicator works so

you better understand what is happening in the
market and not just blindly following a Momentum
line.
How to set it up.
Some trade set-ups.
It is not a black box trading system. It is up to you the

trader to decide where you enter and exit.

The Momentum Trend Trader tells you bar by bar if
momentum is there or not.
Determining the Trend of the Market
Determining important price levels in the market and

how the market reacts to these levels.

Why Momentum
Markets are very hard to predict. It is very well known
that even the experts are usually wrong.
Most traders also make the error of using technical

indicators to try and predict what the market will do
next. You are asking quite a bit of your indicators if
you expect them to tell you where price is going next.
In this e-book you will look at momentum not as

predicting which way price will go, but rather
determining the direction of the momentum trend and
going with the flow.
As you study the charts using momentum you will see

that when momentum is present the market will
usually continue in that direction.
As long as price and momentum agree you have an
opportunity for a successful trade.
Its like a car that has momentum, the more

momentum the more you expect it to continue in that
direction. It will take a stronger force in the opposite
direction to stop it or slow it down.
And it’s the same with the markets, the more

momentum that there is present the more you expect
the market to continue in that direction.
But with markets we always have to be ready for the
unexpected.
So with the momentum indicator we are always
looking for the direction of momentum and an
opportunity to go with it.

About Momentum
The Momentum Indicator is based on two separate
lengths of data. Using the difference between them to
measure momentum.
The difference between this indicator and most other

momentum-based indicators is that most of them are
based on shorter-term data and signals are often
taken from divergence in price and the indicator.
For example ……
Price making a higher high while the momentum

indicator makes a lower high.
Or ……
Price making a lower high while the momentum

indicator makes a higher high.
This can then be all reversed when price is making a

lower low and the momentum indicator makes a
higher low.
Price makes a higher low and the momentum

indicator makes a higher low.

Another popular method is the use of the stochastics
indicator and taking the crossover signals of the two
lines once the indicator is in a over bought or over
sold area.
But what you will be looking at is pure momentum in
one direction and looking for trade opportunities in
that direction.

How It All Started
The whole idea for the Momentum Trend Trader
started with my use of volume profiles.
Volume profiles are created by using volume at price

instead of volume per bar or time period.
On the next page you will see an example of a

volume profile. This is a sample of the charts I posted
regularly to a website for traders. This was before it
was as easily available as it is now. Now there are
many software providers that can give you this type of
chart.
Each profile represents a days trading. Each blue bar

shows the amount of volume at each price for the
day.
The blue bar with the most volume for the day is
indicated by a red square. Your will find most days
fall into this type of pattern with one price attracting a
high amount of volume.

The high volume price in each profile is an important
reference point to watch and be aware of. This is
where a lot of trade took place. Now you want to
watch as the market develops further how it attracts
the market or rejects it.
The longer the time frame the better the chance the
volume profile will take on this shape.
In a very short time frame, or where the market is

moving quickly there may not be a single price or
price area that stands out as a high volume price.
Because of the importance of this high volume price
and how the market reacts to it as it moves forward I
based the momentum indicator on this idea.
But without the need for volume profile charts. As

that would take some complicated software,
something that is beyond my capabilities. Yet would
closely resemble this idea.
So when you move on to How It Works part you will

better understand the visual of the triangles and why I
am using them. They represent the profile of that
block of data. It helps you understand what is really
happening in the market.
Is the market moving away from this area? Or being

pulled back.
If you have access to volume profile charts take a

look at the high volume areas and how the market
reacts to these areas. It will tell you a lot about what
is happening in the market. You will be able to gauge
force or momentum with each move.

How it Works
The Momentum Trend Indicator preferably uses
longer-term data to make it more stable and used only
to measure momentum.
This longer-term approach takes care of the noise in

the market yet lets you measure momentum and take
advantage of price pull backs without putting in to
question the momentum of the market.
The graph below will give you a good visual to keep in

mind to understand how the momentum indicator
works.
The first triangle you see on the left is the base you
use to use the momentum indicator. Now this base
can vary especially if you are using it to determine
momentum out of a trading range.
The tip of the triangle would represent the average
price for that time period. Since markets spend up to
80% of the time in a trading range the triangle is a
good representation of what the market is doing.
The blue portion of the triangle is shorter term moving

average. The faster the blue triangle moves away
from the larger triangle the more momentum there is.
In the above graph the blue triangles represent

momentum moving higher, the next with no
momentum and the last one with momentum moving
lower.
Understand that the larger triangle is also dynamic

and as the blue triangle moves higher or lower it will
also pull the larger triangle in the same direction but
with the larger data size it moves slower.

How to Set it Up
A basic indicator that most charting packages have
that can be used to plot the Momentum Trend
Indicator is the MACD.
It works very well since we are using two moving

averages to measure momentum between two blocks
of data. One inside the other.
The chart below shows the momentum line plotted on

a 3-minute chart. The first input number being 39
and the second one 78. Now on the MACD the third
box is used to specify the length of the moving
average. In this box just enter 1; in this way it only
plots one line, which is all we need for the momentum
indicator.

This is how it looks in the properties box on Trade
Station …

Now here is that 3-minute chart ……
Notice the red arrow is where the market momentum

breaks below 0.00. From that point on momentum
moves sharply lower, even on rallies that proved to be
good selling opportunities.
On some charting packages you may have to plot the

momentum line in a separate box below your bar
chart.
It doesn’t matter either way.
Now as to using 78 and 39 as your parameters, they

will usually give you a pretty stable momentum line.
But they are not written in stone and you want to

experiment with them in different markets and
different time frames.
Also true when using tick charts for example a 77 tick
bar chart. With something like this you may have to
adjust the parameters to get a stable line. Another
approach could be, say you are trading the S&P and
the 1-minute chart is forming up nicely and the
momentum line is stable. You could follow the
momentum line on the 1-minute chart and take your
buy and sell signals from the tick chart.
You can also experiment with a number more or less

then 39. As you go lower then 39, the 50% mark you
will find the line gets unstable. Going higher like 60 or
75% will give you a more stable line but slower to
respond to price moves.

Momentum Line on a Chart
The first chart is a 3-minute chart with the regular
momentum line with the parameters of the base being
78 and the other line being 39 bars.
In these examples you will look at pullbacks as

opportunities to either buy or sell. These are
examples only and not a recommendation to either
buy or sell. What method or setup a trader uses to
enter or exit a trade is totally at his or her discretion.
On the above chart you see momentum is up and

increasing as the market moves sideways to slightly
down at around 11:18. This pullback would give a
buy opportunity once price starts back up in the
direction of the momentum line.

The momentum line continued higher till about 12:48
and then starts to move back down. Now as we
mentioned before when the momentum line is moving
back toward the zero line it is not true momentum and
this is a natural reaction once the market enters a
trading range.
But by studying a lot of charts you may notice that
anytime the momentum line is moving sharply in any
direction no matter which side of the zero line it is on
it can be a good opportunity to take setups in that
direction.
Taking a look at the chart again. The market rallied

around 3:03 and the momentum line continued
sharply lower. Even though the momentum line was
above zero it was a good opportunity to sell.
Later we will look at this using price as a leader. It

gives some great trading set ups. Next we will look at
how to set up for multiple time frames.

Multiple Time Frames
If your using software like tradestation or something
where you can plot multiple indicators its no problem.
You can simply insert another indicator and say you

want to know the momentum of a ten-minute time
frame divide the 10-minute by 3 and multiply your 3-
minute chart settings by that number. Unless of
course you want to use a different length momentum
indicator for the 10-minute time frame.
But in the case above you would multiply the settings

by three and a third. You would have your short
average at 130 and the longer term at 260 as shown
below.

The chart below is a 3-minute chart with the
momentum indicator for the 3-minute time frame (red
line) and for the ten-minute time frame (blue line).
On some types of charting software you may have to

plot the indicator in a box below the chart and not be
able to plot two separate length indicators as shown
above.

Below is an example of a 3-minute chart with the
momentum indicator plotted below.
In a case like this to look at momentum for a longer

term period you would just have to either create a
second chart or toggle back and forth between time
frames.
When it comes to trading using different time frames

you can come up various trading ideas.
One popular way is to only take shorter-term signals

in the direction of the longer-term momentum.

Reading Momentum
On this next chart we take a look at how to read
momentum.
At triangle (1) you see momentum start to increase to

the downside. Triangle (2) and momentum increases
further.
Triangle (3) sees further increase but momentum is

beginning to slow.
Triangle (4), and the momentum line is now moving

higher. But that is where you have to be careful. The
line is moving higher but the line is based on the
difference between the data of the blue triangle and
the larger red and blue triangle. It doesn’t take as
much force to move price back to the longer-term
norm.

To get true momentum to the upside you may in this
case be able to use the data in triangle 2 and 3 as a
base and measure momentum from it.
This is where using a longer time frame can be used.

Even though in this case the market dropped down to
triangle 3, triangle 4 could be a good opportunity if the
longer-term time frame momentum is still positive
True momentum is when the line is moving away from

the zero line.
When the momentum line is moving back toward the

zero line it is more risky since the line will move
toward the zero line even in a sideways market.
This is something that has to be understood when

using an indicator like stochastic that is plotted on a 0
to 100 scale. Lets take a look at that next.

Looking at Stochastics
This next chart will explain a lot about how stochastics
works and what you have to watch for.
The small sideways action indicated by the red arrow

shows how the stochastic indicator is pulled up to the
50 area. This type of up turn in the stochastic
indicator can give many false signals, as there is no
real turn up in momentum. All it takes is sideways
action to pull it up to the 50 area as this area is the
balance point as the zero line is with the momentum
indicator.
Looking at the chart from 3:03 and on the momentum

indicator has turned back up and the pullbacks after
3:03 provide buying opportunities. The stochastic
indicator is already in an over bought position giving
you no opportunity to buy.
Now that is not to say that the stochastic indicator
does not work but when you understand how it works
you are better prepared as when to take any signals it
gives.
One way would be to use it in the way you looked at

using the upturn in the shorter-term momentum line
as a signal when the longer-term momentum is also
moving higher.
The market is always looking for a price area where
two-sided trade can take place. An imbalance on
either the buy or sell side causes the market to trend.
So true momentum is when the momentum is moving
away from the zero line. When it is moving toward
the zero line it is usually doing so cause the market is
moving back into balance.
You can see this by simply plotting a moving average

on a bar chart. There are times when the market is
moving away from the moving average but eventually
it pulls back to the moving average, and can do so by
just moving sideways in a trading range.
Keeping that in mind when you look at any chart

where the momentum indicator is in relation to the
zero line will give you a good idea what is happening
in the market and what market condition you are
dealing with.
Stochastics with Longer Term
Momentum
Now lets get back to using stochastics in conjunction
with longer-term momentum.
The chart below looks at stochastics along with a

longer-term momentum line (blue line).
The points on the chart indicated by the red arrows

are situations where the stochastics where oversold
and turned up. In these cases the stochastics is a
shorter-term indicator and these where profitable
opportunities because the longer-term momentum
(blue line) is increasing despite the short-term
setbacks indicated by the oversold stochastics.

You can see how just blindly following every up and
down turn in the stochastic indicator would result in to
many false signals.
There are many other shorter-term indicators like
stochastics or commodity channel index that could be
used to signal trades in the direction of the longer-
term momentum.

Measuring Momentum from a
Trading Range
This can be used from any trading range or in the
case you seen earlier with the example of the blue
triangle blocks as the market moved lower, then
turned back up toward the zero line.
By using the range created by the blue triangle’s 2

and 3 you can once again measure momentum as it
moves out of the range and above the zero line.
You can measure the momentum from the range by
counting the bars in that range and using that as your
base and half of that amount as your first or fast
moving average.

The larger the range the more stable the momentum
line will be. If you are looking at a 3-minute chart and
the range is small you can always switch to a 1 or 2
minute chart to increase the amount of data for the
momentum line.

Simple but Explosive Setup
There are many different patterns and indicators you
can use for entry setups. A shorter-term stochastics
against a longer-term momentum as you seen earlier
could be one.
Or you could use the simple break of a trend line in

the direction of the momentum indicator.
But here you will see a simple entry method that has
some very interesting results.
Now this setup breaks all the rules that where

mentioned earlier about which side of the zero line the
momentum indicator is on, but the setups are based
first and foremost on the fact that price is making a
new high or new low. You then want the momentum
line to move in your favor the faster it is moving the
better.
The chart on the next page shows you a buy setup.

The market makes a new high, and then pulls back.
All the while the momentum indicator continues to
move higher.

A sell setup would be the reverse,
Of course the most potential comes from the first

signal after momentum has made a turn. The faster
the momentum line is moving the better.

But as you can see from the above charts the market
also gave some other very good signals after the
initial one.
Plot the momentum indicator on some past charts and

you will see the potential this one little simple setup
has.

The Right Time Frame
One of the most important things to consider when
trading is the time frame. Each market is different.
Markets like the stock indices can be traded using

short time frames like 1, 2, and 3-minute charts.
Markets that are less active you may have to use a
minimum 30-minute chart.
You want to pick a time frame that allows the market

to flow in an orderly manner.
Take the stock indices for instance. On active days

the 1-minute chart will form up nicely, on other days
you may have to go with a 2, 3, or maybe even a 5-
minute chart.
Either that or increase the length of the momentum

indicator.
The chart on the next page shows you a market
where the momentum is orderly and the time frame
gives a good flow to the market.

(You can see how that simple setup you just looked at signaled some
very good trades on both the down and up turn on this chart.)
Notice the pullbacks don’t affect the momentum line

but signal good trade opportunities.
The chart also shows trading beginning at around
1:40 which is after the lunch hour. In most markets
time of day is also an important factor to consider
when trading.

This next chart shows a market where the flow is not
as smooth.
This shows the S&P chart during the lunch hour.

Normally a quieter time and it shows on the chart.
The momentum line is jerked around with nearly
every move in price.

After that rally after 2:06 the market starts to form up
again as shown by the chart below.
(The simple setup signaled another good trade when the market
made a new low at 2:31 then rallied but momentum continued to
move sharply lower.)
Most of the rallies provided great trading opportunities

down till the momentum line turned back up.
So you can see how pick the rite time frame for each
market is very important.
And with 24-hour markets like the stock index’s and

forex that time frame can change depending on the
time of day or night.

Some Charts
Here are some charts using that simple setup…
The first two blue arrows signal situations where the

market makes a new high followed by a pullback. At
the same time momentum is moving sharply higher,
and has even crossed the zero line.
The third blue arrow points to a situation where the

market makes a new low and starts the momentum
line to move lower. Then it rallies but as you can see
momentum also flattened out and then turned back
up. Had this momentum continued down on this rally
we would have had a possible sell signal.

The signals on this one are pretty straightforward.
At the red arrow the market has made a new low then
rallied as momentum moves lower.
The first blue arrow is questionable, it made a new

high then a pullback but momentum is just beginning
to move up.
The second blue arrow is clear. A new high a

pullback and momentum moving sharply higher.

Some More Charts
The blue arrow points to another classic situation
where the market makes a new low then rallies before
it resumes back down. At the same time momentum
continued lower and moved below the zero line.
The first red arrow shows the market making a new

high compared to a few bars earlier. Momentum also
starts to move higher but resumes back down on the
pullback. So you know there will be no buy signal
here.
The market action at the second red arrow almost

mirrors that of the first red arrow. A new high from the
previous few bars and a momentum line that has
turned up. But once the market turns back down it
also drags the momentum line down.

The second blue arrow points to a new low. This is
followed by a rally and at this point the momentum
line is moving sideways so this situation is not quite
so clear.
You can see how on the chart above the momentum

line has become very sensitive to each swing in the
market. When this is happening it is hard to get a
clear signal and maybe wise to stay out of this time
frame using the simple strategy you been looking at.

Now lets look at this same time period with a different
time frame.
Below is a chart of the same time period but this time

it is a 2-minute chart instead of a 1-minute chart.
Notice once the market breaks lower the momentum

line moves consistently lower.
You still get a sell signal at the first blue arrow.
The first red arrow where on the 1-minute chart we

got a new high and turn up in momentum, this time it
is a clear sell signal. Though the market rallied
momentum continued lower.
The same can be said for the market at that second

red arrow.

At the second blue arrow on the 1-minute chart there
was not a clear signal. But on this 2-minute chart you
can see the market rallied from this new low but
momentum continued lower, signaling another
possible sell opportunity.
Its not till after 11:02 that the momentum line turns up.
Of course the further the trend is along the more
chance there is of a pullback.
You can see from these 2 charts that choosing a time

frame where you get a good flow and a smooth trend
line is ideal. A good reason to watch the market in
different time frames.
A time frame with a momentum line that is following

every turn in the market should probably be avoided,
at least with the above strategy.

Determining the Trend
The first thing we will look at is a couple ways to
determine the trend.
An up trend consists of higher highs and higher lows

and a downtrend consists of lower lows and lower
highs.
A high is determined by a bar that has a bar before it

and after it that has a lower high. A low is determined
by a bar that has a bar with a higher low before and
after it.
But because of the noise in the markets that will often

cause a high or low to be broken by a small amount.
So to qualify a high or low for purposes of determining
a trend you are probably safer to have two lower
highs before and after your high. And two higher lows
before and after a low bar.
Another way to qualify a high or a low for determining
trend is using a moving average.
A new high or low can only be made if a bar closes

above the moving average for a new high and below
for a new low.
You may then have a bar with a high higher then the
previous two highs but if it does not close over the
moving average it does not qualify as a new high.
The reverse for a new low, you could have a low that
is lower then the two previous lows but if it doesn’t
close below the moving average line it would not
qualify.

The chart below shows the trend with the highs and
lows determined by a 9 bar moving average.
Next we will look at changes in trend and how to

combine that with momentum.

Trend Change and Momentum
When the market is in a downtrend we are looking for
a higher high as a possible change in trend.
The opposite is true in an up trend we are looking for

a lower low as a possible change in trend to the
downside.
When the market makes a new high or low you know

there has to be momentum to some degree. It may
not show on the momentum indicator that you are
using so what you can do is apply a indicator length
that will show a degree of momentum in the direction
of the new high or low. Or a lower time frame.
If there is not much momentum on this break to a new

high or low you will have to use a indicator that is
based on a small amount of data. But this shorter
momentum indicator will be very vulnerable to any
pullback in market direction, and if the momentum
indicator pulls back with the market that signals the
break to the new high or low has failed.

The chart below has a 39/78 (red line) and a 27/54
(blue line) momentum indicators.
After 2:01 you can see the market made a lower low,
then rallied for 3 bars. At this point the blue line has
already begun to turn down and the red line is
flattening out signaling a possible trend change.
When the market does turn down the momentum
lines turn down sharply and the downtrend has
begun.
You can see how the shorter-term indicator along with

the trend change in price gave you the opportunity to
sell the market earlier.

Here is another example, this time using multiple time
frames.
The red trend lines show the market making lower

lows. When it rallies from these lows the red
momentum line continues to move lower signaling
momentum in the same direction as the new low. The
blue line that is from the 10-minute time frame has
started to flatten out but is still moving higher. That
signals you still have to be very careful and monitor
your trade closely till that longer-term blue line starts
to move down.
But here again you can see how the lower time frame
can give you a jump on the trend change.

The chart below shows once again the regular 39/78
momentum indicator in red and a longer-term
indicator in blue. The red trend line marked A shows
a change in trend with higher highs and a momentum
indicator that has turned up. The longer-term blue line
continues lower so you have to be on alert if you had
bought this market.
The trend line at B shows a possible trend change to

back down as it makes a lower low. The red
momentum line continued higher at this point and this
is a situation where you may want to go to a shorter
momentum line or shorter time frame to measure
momentum at this new lower low.

You have the longer-term blue line momentum
already in your favor to the downside. This was a
great setup as when the market turned back down it
pulled the red momentum line down with it. Now once
again both price trend and momentum where moving
together to the downside.
A trend change in price backed by momentum is a
simple yet powerful setup to taking the most profit
possible out of a trend.

Section II New Approach
I was looking over a book at a local bookstore and
noticed a chart that gave me an idea that I thought
would better show how the “Momentum Trend Trader”
works.
This new approach will give you a much better picture

as to what is happening in the market and also should
signal a lot more trading opportunities.
As you read earlier this whole idea started from the

volume profile chart.

On the volume profiles below each profile represents
one days trading. This happens to be a chart of the
cocoa market.
Notice here how important the high volume price is to

the next day’s profile.
The high volume price on

the 17th contains the high
on the 18th.
On the 7th you have the high

volume price and also high
volume near the high. These 2
high volume areas contain the
range for the 10th.
Notice how the high volume

price on the 6th supports the
market and is only a couple
prices away from being the
low for the 7th
The high volume price of the preceding time period is

always a great reference point in the market as we
move forward.
The chart below is a little different. It shows both time
and volume. The green bars represent time spent at
the price and the blue bars the amount of volume
traded at that price during the day. The profiles of
either time or volume are pretty much the same.
They create almost the same profile shape with the
high volume price also the price where the market
spent most of its time.
Since both time and volume are so closely related this

allows us to use time to key off this important high
volume area as the market develops.

The next chart is a profile chart but the profile is
based on time. Each profile represents a 30-minute
time period. Each minute that a price is traded at
adds to the profile. For instance, say out of the 30-
minute period a price is hit at 10 different interval
minutes that would give it a value of 10 in the profile.
If another price was hit say at 15 different minute
intervals it would have a value of 15.
Another way is to build a profile using ticks. That
means each time a trade is made at a certain price it
is added to the profile. That would differ from volume
because some times a trade may represent 10
contracts and another trade mite be 100 contracts.

Even though each profile represents 30 minutes of
trading they still develop in the same way as does the
profile for a day. If you didn’t know you would not be
able to tell whether the profiles above represented a
full days trading or 30 minutes worth of trading.
Notice again how important the high volume prices

either act as support or resistance as the market
moves forward.

This next chart is a 10-minute profile of the Emini
S&P. Once again you can see how the profiles
develop very similar to a daily profile even though in
this case each profile only represents 10 minutes of
trading.
Of course this market is very liquid with a lot of trading

going on. In a thinly traded market you probably
couldn’t use a 10-minute profile chart. On some thinly
traded markets you may go a 10-minute period or
even longer without even recording a trade.

Even though it is only a 10-minute profile it is easy to
see how important those high time profile bars act as
support and resistance points as the market moves
forward.
Since the market uses this pattern over and over

again this is a great reference point to key off of to
determine the strength of a move and momentum.
Since we are looking at profiles we will look at one
more on the next page. A profile with a 1-minute time
frame.

This next chart is a 1-minute profile based on tick
volume. In an active market like the emini S&P even
the 1-minute chart creates a profile similar to longer-
term time frames.
You can see from this chart that even in the 1-minute
time frame that the high volume price in each profile is
an important price. It often becomes the support or
resistance area for the next bar.
Next we will look at how to read this information from
a simple bar chart to determine the trend, momentum
and the important price levels.

New Way To Look At It
This new simple way to look at it should make it
easier to see the strength of a move and the
momentum behind it.
A quick look at those triangles again.
The red would represent the whole triangle and the

blue the latest half. So on the charts we will be
looking at the red line will be the longer term and the
blue line the short term. We use half here but you
could try and experiment with some other ratio.
On these next charts we will use a simple moving

average. A simple moving average gives the same
weight to all the prices, compared to an exponential
moving average that will give more weight to the
latest bars.

The price used for each bar was the mid price, high
plus low divided by two. If you can’t do this on your
software using the closing price should be very close.
The reason we use the mid point price is that if you
look at the profiles regardless of the time frame the
high volume price is usually near the middle of the
range of the bar.
So if the longer-term average is 54 and we are using
a 2-minute chart we will be taking the mid price of the
last 54 bars and creating the simple average with that.
This average will act as the high volume, or in our
case the high time price for the last 102 minutes. The
shorter 27 bar time frame will be in blue.

The first chart we look at is a 2-minute emini S&P with
a 27 and 54 average. The difference or distance
between the lines is the momentum. As the market
moves down from 11:32 to 12:32 the lines are moving
further apart creating momentum to the down side.
The red line would be like the zero line on the
momentum indicator.
After 12:30 the blue line starts to turn up heading

toward the red longer-term line. The market has also
made a new high compared to the high made just
before 12:32. Then just before 1:02 the market pulls
back but momentum continues to move higher as the
blue line continues to move closer to the red line
despite the pullback.
Now if you where to enter a trade here as the market
turns back up at 1:02 you would want to see it quickly
move up and break the previous high of 1145. If it is
unable to break this high the up trend could be in
trouble. Momentum is moving up but still below the
zero line.
The other thing you can take note of is that the

pullback just before 1:02 touches that blue line. That
is like touching that high time price of the 27 bar time
period. Remember how often that high volume price
was either a support or resistance area for the next
bar.

We will look at the same chart but move further on
down. We see momentum move to the plus side after
1:02 and the market makes a new high just before
1:32 then a pull back till about 2:02. You can see by
the distance between the two lines that momentum is
on the plus side and holding and near 2:02 turns
slightly down. Here we see the advantage of using
this method over just plotting the momentum
indicator.
Looking at the lines you can see the market is still

moving higher. At 2:02 and just before price as
dipped just below the blue average line but that longer
term red line at this point is still holding the market.

Again we would be looking to see if this longer-term
high time price will either show support or resistance
in the market. You could have once again looked to
buy this market when it resumed back up.
Just after 2:32 we see another pull back as the
market touches that blue line. At this point even
though there has been a pull back in price you can
see that momentum has increased as the distance
between the lines is increasing. Another possible
buying opportunity as the price resumes its move
back up.

Now here is that same chart but using 15 as the
short-term average and 30 as the longer-term
average. As you can see it reacts a lot quicker to
price moves. This would give you a lot more trade
opportunities but you have to be careful not to over
trade. It is also important to always know the trend of
the market. Ask the questions. Is the market making
higher highs? Higher lows? Or has the market
turned down and making lower lows and lower highs.
On this chart the signals at 12:32 was pretty much the

same. The pullback to 2:02 is not as clear as price
lingers around the high time price of both the red and
blue line. From that point trend direction is unclear till
you get either a higher high or a higher low.
The signal at 2:32 is pretty much the same as the
market touches that high time red price with
increasing volume then resumes its way up.
The advantage with the shorter averages on this chart

would have been catching the downturns when the
market made new lows at both 11:32 and 3:32.
Momentum had turned down and price had moved
below the high time area of both the red and blue
lines. With the shorter time frames you have to be
more on top of things.
You can see that by looking at the markets in the
manner we have shown that you will have many more
opportunities to trade and also a better understanding
of how the market is trading.
You will always know on which side of that important

high time price the market is trading at and from the
profile charts you can see how important that price
area is when it comes to support and resistance for
the next price bar.
When momentum is moving up but below that zero

line you can see how you want to be on alert and see
the market making higher highs. Other wise that high
time price of the longer-term time frame could stop
the market from moving higher. When momentum is
moving down from above the zero line it works the
same just in reverse.
A Look at Stocks
Here we see a few daily stock charts using a 27/54
time length. You can see it creates the same types of
opportunities as it does with the shorter time frames.
Late September beginning of October the market

pulled back to the 27 line with momentum increasing.
Then turned up from that line resuming the up trend.
A similar pull back near the end of October. Then a

resumption of the trend. Notice the area from mid
November and mid December. The market is moving
sideways with the lines converging. You see a new
low mid November but then heads back up to make a
new high early December. Then sideways to down till
mid December. You want to see both momentum and
trend in your favor.
And as we seen from the profiles it is nice to see the

market rejected at the high time prices. Like we see
the beginning and mid October.

Late January and early February we see price come
down and touch the longer-term line only to rally
again. Momentum was also in our favor. But as you
can see around mid February the market fails to make
a new high and heads back down and is pulling
momentum back down with it. Had we gone long
earlier this would put us on alert that the market is
failing and we may want to exit this trade when the
longer-term line fails or maybe even sooner.

Here are a couple more daily charts.
A good signal in mid October. The market had been

in a trading range then made a new high. From there
it pulled back to the lines that acted as support. At
this point momentum was also moving higher even
though the market had pulled back. The market turns
back up and creates a new high confirming an up
trend.
Mid December the market pulls back again and finds

support at the short-term high time line. From there
the up trend is confirmed once again as the market
makes higher highs and higher lows late December
and early January.

This next ebay chart shows a great buy signal. Mid
December the market makes a new high then pulls
back as momentum turns up. Finds support above
the long-term high time line and from there resumes
its way up making a new high.

Weekly Stock Chart
An IBM weekly chart with 27/54 average high time
lines.
As you can see with the weekly chart below that you
are looking for the same price trend and momentum
patterns. For an up trend you want higher highs and
momentum in your favor.

With Forex Charts
The signal arrows where placed on this USEUR 4HR
chart using momentum from a 39/78 ratio. The lines
on this chart are 27/54 but you can see how they
confirm the signals and you can probably see even
more opportunities.
Charts courtesy of MetaTrader

Forex markets like to trend and here is a continuation
of that last chart starting from the last up arrow,
Chart courtesy of MetaTrader
You can see all the opportunities during this up trend

as momentum held to the upside on the pullbacks.
And the price pullbacks stopped either at the short or
long-term high time price. Then resumed the up
trend.

5 Minute Forex
The chart below is 5-minute USEUR. From this chart
you can see that when the market is in a trading
range like in the first part of the chart the highs and
lows are not contained by the high time average lines.
We see a new high on Jan 27 after 7:10 but on the
pullback the market breaks through the lines.
We get a new high again on Jan 27 after 9:50. This

time the pull back is stopped at the short-term blue
line and momentum is increasing. From here the
market starts a nice move higher.
That is kind of an ideal setup. The market makes a

new high then the pullback creates a higher low and
finds support at the short-term high time line.
Charts courtesy of MetaTrader

From that point there are a few more opportunities as
the market pulls back yet momentum is increasing
then the trend resumes and makes new highs.

Trading the Trend
Throughout the examples we have been looking at
trades using a simple set up. For buy opportunities
we have been looking first at the market making a
higher high then a pull back. To keep the trend intact
we want the low of the pull back to be a higher low.
We prefer to see momentum increasing or at least
holding. We also like to see the low hold above or at
the high time lines. If it holds at the shorter-term line
it indicates the market is even more bullish.
The reverse of all this would be true for sell set-ups.
But with all that said these where only shown for
purpose of demonstration.
There are many different ways to enter the market.

Nothing says you have to wait for a pull back before
you can enter a trade.
You could have a method of entering a trade after a

breakout if the market is telling you the trend is under
way. You have to trade at a level and time frame you
feel comfortable with.
If you have any questions about this method you can

send them to:
info@momentumtrend.com
Day Trading Trend Change
In day trading you are often looking for opportunities
that give you a quick profit and yet give you the
possibility of having the market go your way in a big
way.
The opportunities that offer you the biggest profit

potential come when you can enter a trade as close
as possible to the beginning of a trend. Whether that
is at a break out or change in trend.
To catch these quick changes in trend we will go to a

shorter-term 13/27 momentum line.
Understand that once it catches a turn this shorter-

term momentum line can quickly run out of steam if
the market doesn’t move quickly in your favor. Once
in you may want to look at longer-term momentum or
just take quick trades.
The market we will look at is the emini S&P. The best

trending times for this market for day trading are in
the morning and afternoon. Often the action around
lunch hour results in many false breakouts resulting in
a trading range. Those are times you may want to
avoid unless you are using a different strategy.

On the day trading chart below the blue line (13 bar)
is the support and resistance line and the red line is
the 13/27 momentum line. On these charts we are
mainly looking at the first set up after a change in
trend. For these setups we are using a shorter-term
support resistance line so you should look to see the
market move quickly in your favor and then be
confirmed by a longer-term support resistance line.
The market breaks down from the trading range then

pulls back at 2:01, it does not quite reach the blue line
which indicates selling and momentum is down and
stronger then normal. The next couple arrows show
how the blue resistance line holds the market, this is
what you like to see with the market moving in your
favor. With the market contained under this shorter-
term blue line tells us the down move is fairly strong.
That and it continues to make new lows confirming
the downtrend.
We have a possible trend change when the market
rallies above the blue line after 2:46 then pulls back to
just below the blue line. At 3:01 the market resumes
its trend up and momentum is moving higher. The
fact that the market dropped a bit below the blue line
compared to the earlier break from the trading range
where the market didn't reach the blue line, shows
there was not quite as much strength in this move as
the earlier one. This proved to be true as the market
moved higher but not as quickly as the earlier move.
Notice even though the blue line failed at times the
market was able to continue to make new highs.

This next chart shows market action that is not as
clear. When you have the price bars continually
crossing the blue line chances are you have a trading
range market or one with not to much trending
potential. That is trading in the shorter time frame like
a 1-minute chart. At the same time on a 10-minute
chart there may signal a great trade.
The blue arrow indicates one possible set up as the

market finds support at the blue line while it is moving
higher as is the red momentum line.
From that blue arrow the market makes a new high

very quickly. That is what you like to see as it puts
you in a positive position immediately.

The market continues up above the blue line till about
11:16. After that it trades along the line for the next
15 minutes. After trading that long along the blue line
using the short time frame it’s hard to guess which
way the market will go next. At that point where you
exit the trade can make a big difference in the bottom
line. Do you take your profit now or wait for it to go
higher, or place a stop and wait till you lose more of
your profits.
You had another setup with the trend just after 11:01;
the market pulls back a couple bars then quickly
resumes its trend again making a new high.

This next chart is the type of action you like to see.
See how the action on this chart is different then the
previous one. Until about 11:30 the price bars hardly
touch the blue support and resistance line. The
arrows show the trend change setups but as you can
see the blue line gave many other opportunities
during the trend as well.
During the trend each time the market came back and
found support at the blue line it then resumed the
trend and made a new high.
Notice between 10:36 and 10:46 the market pulls

back, finds support before it reaches the blue line
then heads back up. This certainly would have been
late to buy after such a long move up.
But this time the market failed to make a new high,
and started moving sideways.
Another opportunity to use your money management

and trade exit skills. Do you place your stop below
the low and wait for the market to take it out or get out
now at possible break-even or a small loss.
Remember break-even or a small loss and it feels like
you get another free shot at the market. There will
always be another set up. Really depends on your
trading style, what suits you and how much you want
to risk.
After 11:30 once the price bars start crisscrossing the
blue line direction is not as clear. At least not in this
time frame. In a longer-term time frame this could be
a good signal.

The setups on the chart below saw the market first
trade above the blue line, break down below it, then
rally and have the blue line act as a resistance line.
In both cases the market resumes its move down with
both the blue and red lines moving lower. Even when
the market rallied to test the blue line both the blue
resistance line and the red momentum line continued
lower.
This was another afternoon where the market trended

well and a lot of good opportunities when the market
spends most of its time either above or below the blue
line. If the market trades around the line with most
the bars touching the line chances are that the market
is more in a trading range.

You don’t have to limit yourself, if the market is not
trading in the manner you like switch to a different
time frame. For day trading look at different time
frames, 1, 2, 3 and 5-minute charts. Pick the time
frame that is trending the best.

Here is another example of a market in a trading
range highlighted in yellow. In this area I would guess
80% of the bars touch the blue line. Once it breaks
out of this range you have the reverse, 80% of the
bars don’t touch the blue line. Makes it easy to see
when the market is really trending.
If you go back and look at the other charts in this book

you will find the same, the best opportunities are
when the market is spending 80% of its time away
from the blue line.
And that goes for any time frame that you might be
trading, from 1-minute to weekly charts.

Here is another great example. I would say on this
chart about 80% of the bars don’t touch the blue line.
And the trend change setups are all great. After a set
up the market quickly makes a new high or low and
continues in that direction.
And that’s what you want to see after a set up. After
a buy set up you want to see the market make a new
high. If the blue support line held and momentum is
up and it can’t make a new high it should put you alert
that something is wrong or something has changed.
Nothing is written in stone, some news release or
longer-term resistance could change things in a hurry.
The price trend must confirm what you expect.

Extremes
We have looked at the control price which is a price
area considered to be fair value as the market stayed
in that area creating the most volume for that period
of time.
On the other ends of the scale are the extreme prices.

At the top of the profile these are prices where the
market did not stay long. The price was too high to
attract buyers and such a good opportunity to sellers
that they quickly drove the market back down.
At the bottom end the opportunity for buyers is there

and they quickly overwhelm any selling activity driving
the price back up.
So the extremes are areas where only one side is

really in control of the market. This is another way
that the total sum of the actions of traders leaves its
footprint.
This happens in all time frames from 1-minute charts

to longer term daily and weekly charts. The longer
the term the more stable and meaningful are the
reference points created by the market. An extreme
made on the 1-minute chart may not last very long.
One made on a daily chart may last for weeks or even
months.

What we are interested in is finding these extremes
and then using them to monitor future market activity.
If the market again approaches these areas and the
area holds nothing has changed. But if the market is
able to break through this area there has been a
change in market sentiment.
How do you determine market extremes? Either by a

test or by time. When the market makes a new high
then makes another attempt at this price area but fails
that confirms an extreme high. The seller is in control
in that price area. Another example would be when
price makes a new low a quickly moves away from
this area and doesn’t visit that area for a period of
time. The longer it stays away from the area the
stronger the reference point is. The chart below
shows two examples of this.

The first green box near the top of the chart is an
example of a test. The market made a high then was
tested and moved away from this area. This would
indicate that the seller is here and for price to move
higher there needs to be a change in market
sentiment.
The second green box is an example of the market

making a low and then quickly moving away from that
area without a test. But as time moves on it confirms
this was a market extreme where the buyer was in
control. Price did not visit this area again till much
later in the day.
You can find these reference points on charts of any

time frame. These are very useful as the market
moves forward and you monitor market action.
Now lets take a look how these reference points can

be used in your trading.
Lets take a look at the trade that took place at that

last red arrow. Just after 2:48 the market came down
and touched that buying extreme that was created
earlier in the day just after 11:00. This area gave
support to the market at it rallied back up to the blue
line. At this point the blue line indicates the market is
in trend mode and the blue line is acting as
resistance. We get our sell signal as the market turns
back down.
Here is that chart again so you don’t have to keep
going back and forth.
Now that we would be in a trade at this point you want

to see the market break through the buying extreme
which would indicate a change in sentiment which
would confirm your trade is on the right side of the
market. In this case it hesitates for a bit but then
breaks through and quickly moves much lower.
Entering a trade like this often the ideal point to enter

a protective stop would be just above the rally high at
the red arrow. Now this is one way you could also
use these reference points to cut the risk amount in
your trade. Had the market not been able to break
through this buying extreme it would have been a
signal to you that your trade may be in trouble.

If that were the case there would be no need for you
to wait until your stop is taken out to get of the trade.
You could get out much sooner cutting your risk,
which you could apply to your next trade.
Should the market resume back down you can always

get back in.
Here are some more examples. They are taken from

the forex markets but the principles are the same.

The market makes a low on this chart early August 1st
but quickly snaps back up. What qualifies this as an
extreme is that the market then trades above this
price area for days to come.
The larger red box projects this area forward. August

13th the market comes down to this level and finds
support for the next couple days. On August 15th the
market breaks through this extreme. Sentiment as
certainly changed, the buyer is no longer considering
this area a deal like it was earlier.
Then the market rallies up to the red arrow. The trend

is down as the rally fails. Momentum is also down
and increasing to the down side. Even the blue
shortest-term control line is rejecting the market.

The market doesn’t even come close to reaching the
red control line. The red boxed off area that was
support has now turned into resistance.
The smaller red box at the top of the range would

have been a reference point for a break to the upside.
On this next chart we have an extreme at the left side

of the top red box. From there the market moved
lower creating another extreme highlighted by the
lower red box.
From that point we have both trend and momentum

turn up. We have a pullback at the first red arrow and
the market holds above the blue control line turns
back up. Had you bought at this point now you

would be monitoring the market as to how it will react
as it approaches that extreme area. If it fails to go
through that area you know your trade is in trouble as
the seller is still there. The market enters this area
just before the second red arrow and we witness a
slight pullback. But once again the blue control line
rejects the market and momentum is still up. The
market once again turns back up.
This is the second attempt at this extreme area and

since we have bought this market we want to see
price move right through this area. On this second
attempt the markets moves quickly through this area
confirming there is a change in the market and we are
on the rite side of the trade.
Now a look at extremes in a trading range. The red

boxes mark the extremes of this trading range.
Sometimes the break through an extreme will be the
best opportunity to get into the market. As you can
see by this example there never really was a pullback
till the market moved much higher.
Had you entered a trade on this breakout you would

have to closely monitor how the market now acts at
this extreme. In this case momentum is up.
You also want to see the shorter-term blue control line

reject this market to keep the trend intact. In this case
you can also see how sentiment has changed.
The upper red boxed off area that was once
dominated by sellers is now giving support to this
market.
When working with extremes you have to be careful

with short-term extremes as they wont hold the weight
of a longer-term extreme.
With the shorter-term extreme you may want to also

have the longer-term trend in your favor.

This next chart shows extremes on a 15-minute chart.
Both of the buying extremes held the market for quite

a while. Once they where broken the market
sentiment had changed and the market moved much
lower. Now we will look at first the green, then the
blue boxed off area on a 5-minute chart.

Here is a 5-minute chart showing those same two
lower extreme areas designated by the red boxes.
You can see how at the first red arrow the buying
extreme gave support to the market. But from there
the rally fails and the market moves quickly through
the support area.
The buying extreme area at the second red arrow

held the market twice before it failed. But during this
time momentum held to that downside. Once the
market did break through this extreme it moved
sharply lower.
Then rallied back up to where the buying extreme was

and became a new selling extreme.

Here is a closer look at that same action. The lowest
red box is a new buying extreme created by the
market at the second red arrow.
You can see the action at the first solid red arrow now
creates a selling extreme in an area that was at one
time a buying extreme.
At the second solid red arrow we have witnessed a

trend change back to down, the rally fails, the blue
control line is rejecting the market action and
momentum is down. A sell here is confirmed when
the market moves through the buying extreme area
telling us that sentiment has once again changed to
the down side.

You can see that monitoring market action at the
extremes is very important in determining who is in
control of the market, the buyers or the sellers.

Tick
Tick simply tells you the difference between the
numbers of stocks on the New York Stock Exchange
that made there last trade on either an up tick or down
tick from the previous trade. You can also get tick
readings for other markets such as the Nasdaq. For
example if on 400 stocks the last trade was made on
an up tick and on 200 stocks it was made on a down
tick the tick would register +200.
Tick works great as a sentiment indicator. It gives

you a good idea as to the amount of buying and
selling pressure in the market at any given moment.
When tick stays mostly on the positive side we can
assume that the market overall is bullish and when it
is mostly on the negative side we can assume the
market is mainly bearish. When tick reaches an
extreme like + or - 800 or a 1000 it could signal a
possible turn in the market. Here again you have to
be careful as on a day that is very bullish this may just
result in a temporary pause in the market before it
resumes its trend.
Here is one way to determine how bullish or bearish

the market is. Take a 10 or 15-minute tick chart and
look at it using the principles of the market profile.
The higher that control price is on the day the more
bullish it is. The next couple charts will give you a
better idea as to how that works.
The blue line on the tick chart represents the control
price for the 15-minute time period for each day. The
higher the control price the more bullish the day is.
This is confirmed by looking at the 15-minute bar
chart of the mini dow.
The 25th was a very bullish day. An extreme to the
downside on the tick chart this day was anything that
dipped below the 0 line which is highlighted in red.
Extreme readings in tick will be different from day to
day depending on the type of day we are having.
Bullish, bearish, or neutral. What is an extreme
reading to the downside today might not be tomorrow.
With a charting program that has profile software it
makes it a lot easier to see how the day is developing
and you could use a shorter time frame to build the
profile.
Tick and Divergences

The tick is determined by using the actual stock
market so divergences between tick and the futures
price can lead to some interesting trade setups. A
common divergence is when price makes a higher
high and the tick makes a lower high. But another
interesting divergence is when the tick makes a
higher high or lower low and the futures market
doesn’t.

That can make for an interesting set up but once in a
trade you want to see the market you are trading and
the tick to be moving in the same direction. As your
trade progresses and if the market is very bullish you
may get a record high tick on a breakout then tick
begin to fail as the market itself moves higher.
Looking at the next two charts you can see a trade

setup between 15:15 and 15:30. The market has just
made a new high and has pulled back to the blue line.
You will see three bars there that trade rite around the
blue line. While at the same time momentum
continues to move higher.
Now if you look at the next chart showing you the tick
you will see that tick went lower then it did at 15:15
even though price didn’t.
Had you entered a trade here when price resumes its

upward trend you want to see the market make a
higher high and tick to also follow.
You get both as the market moves higher and tick

makes a new high. When the market makes a new
high just after 15:30 you also get a new high on the
tick.
The market makes another new high at 15:45 but tick

fails to, a signal to either take some profits or at least
to move your stop up to protect them.
Big Swings in Tick
Another thing to keep an eye out for is a big swing in
tick. Especially when tick reaches the extremes of the
tick profile.
Looking again at the last couple charts you can see

wild swings in tick just after 14:00, just before 15:15
and the high made at 15:45.
On the mini dow chart these all turned out to be

important turning points for the day.
The important thing to be aware of again is the trend

of the market. If you have an up day big swings in the
direction of the trend may be ok to take but swings in
the opposite direction may really hurt you. But these
could be good points to take profits if you’re trading
short term.
On days where the market is in a trading range you

should be on alert for big swings in tick on both
extremes.
The next couple charts shows some big swings in tick

that lead to some important turning points in the
market. These where swings of about 800 ticks in a
matter of minutes, three of them in 3 minutes, and
one took 4 minutes.

The one at number 3 ends up being of shorter term
but is an important reference point for the one at 4
where the market begins an extended move up.

On this next chart we will look at an extreme that was
created at the same time as we had a strong reversal
in the tick. The blue horizontal box indicates the area
of the selling extreme, at the same time there was a
strong reversal in the tick at the red box marked #2.
A strong reversal in the tick at the red-boxed area #4

started the market move back up. In the red-circled
area the market stops and pulls back when it hits the
blue boxed extreme level. Even when the market
pulls back and moves sideways for 4 bars the blue
line continues higher with momentum increasing to
the upside.
The market is now at an important reference point,

the question now is can it carry through this point.

We get our answer quickly as on the second attempt
the market quickly moves through this high. At the
same time it also takes out the previous extreme
indicated by the green box. This green box extreme
was also was also confirmed by a big swing in tick to
the down side at point 1.
Looking at the area circled in blue you can see that

the green-boxed area extreme now acts as support.
Momentum is still to the upside. The blue line is rising
and acting as support for the market. Another
excellent buy opportunity.
The big swings in tick at the extremes of the tick

profile can signal the trader some very important
reference points as they are happening.
The next couple charts show another situation where

you could have used the big swing in tick to lock in
your profits.
As the tick chart shows there was a big swing in the

tick around 14:30. Tick dips below –800 then a swing
up of over 1,000 ticks within 4 minutes.
On the bar chart the horizontal blue line could have

been a common place for a stop. Waiting for this
stop to be taken out would have taken awhile and you
would have made even less on your trade.

Of course if you are looking longer term then you may
want to hold the trade.

These next 2 charts show more big swings in tick that
proved to be important points on the 2-minute chart.

Looking at the past few charts shows how important
the big swings in tick can be when you are trading
short term.
You want to see tick go to one of the extremes then

reverse by 800 to 1,000 ticks. Looking at the chart on
the previous page you can see how the big tick
reversal at 15:30 would of allowed you to lock in
profits before the sharp rally began.
These tick reversals can be very important especially

if you are trading the 1 and 2 minute charts and
trading from a short-term perspective. This will often
allow you to lock in profits, giving you an opportunity
to take advantage of the next setup.
When you bring in other information like momentum

or the trend of the trin you could even use shorter
swings in the tick when they are in the direction of the
trend. Even a 400 or 600 swing in the tick could be a
good opportunity to go with the trend.

Trin
Trin is a little more complicated then tick. Also known
as the Short Term Trading Index it was developed by
Richard Arms. Trin is calculated using the ratio or
advancing stocks over declining stocks divided by the
ratio of volume of advancing stocks over volume for
declining stocks.
The formula being:
Advancing Stocks/Declining Stocks

Advancing Volume/Declining Volume
Lets look at an example and say there where 1000

stocks advancing and 1000 declining and volume on
advancing stocks being 5000 and volume on declining
stocks being 5000
1000 / 1000 1 =1
5000 / 5000 1
A ratio of 1 indicates a balanced market. The ratio of

volume is the same as the ratio of advancing and
declining stocks. Now lets look at it when volume is
heavier in the declining stocks:
1000 / 1000 1 =1.66

3000 / 5000 .6
Ratio’s over 1 indicates a selling imbalance. In this
case advancing and declining stocks where equal but
volume was heavier in the decliners.
1200 / 800 1.5 = .6

5000 / 2000 2.5
Ratio under 1 indicates a buying imbalance.

Advancing stocks out numbered decliners and volume
was also heavier in advancing stocks.
900 / 1100 .82 =. 62

4000 / 3000 1.33
In the above case decliners out numbered advancers

but volume is heavier in the advancing stocks so we
end up with a bullish ratio.
When it comes to trin we will be looking at the ratio

and the trend of the ratio. If the ratio is 1 it means the
market is balanced and volume is coming in equally to
advancing stocks and declining stocks. For the
market to be bullish we would like to see the ratio at
about .80 or lower. For the market to be bearish we
want to see the ratio to be 1.20 or higher.
Then as the day moves along we watch the trend of

the ratio on a 2-minute chart just like we do the tick
and the Emini.

Most charting services will chart the trin like shown in
the chart below. If the trend is down that means it is
bullish and if the trend is up the market is bearish.
There is software that will scale it the other way

around so that it will be visually correct. When it is
trending up the market is bullish and when it is
trending down the market is bearish. Make sure you
know what scale you are dealing with before you use
trin. In the samples we will look at we will use the
method shown on the chart above.
It usually takes the first 30 minutes for the market to

settle down so lets say the reading after the first 30
minutes is .80. That would tell us that the market is
bullish according to volume as money is flowing into
the advancing issues.

From that point on we look at the number but also the
trend of the trin. If the trin continues to hold at .80
that means that volume is still imbalanced to the buy
side.
If the trend of the trin starts to move lower that would

mean the volume is increasing in the advancing
stocks making conditions even more bullish. When
the trend of the trin starts to move up in the market it
indicates that there has been a change in the ratio.
But that is where it starts to get tricky. The further the

market gets from that balanced 1 ratio the more
volatile the ratio of the trin will get.
As an example lets say the market has been very
bullish and trin has trended down to a ratio of .60 by
11 in the morning. From 11 on to noontime volume is
still bullish but during this time it is coming in at a ratio
of .80. This would cause the trin trend to move up
toward the .80 level. Trin is trending up but it is still
bullish. For trin to turn bearish from the .60 level you
would want to see it move up sharply to give you
confidence that selling is strong.
The further you get away from the 1 ratio the more
you have to be careful about following the trin trend in
the opposite direction as that is where the trend can
really fool you.

And that’s using trin for day trading short term with for
example 1, 2, or 3-minute charts. Not to be confused
with traders that use the extreme readings as an
overbought or oversold indicator.
Another important use of trin is to confirm a trade.

Once you buy you want to see the trin either hold or
move lower confirming your trade. On a sell you want
to see trin hold or move higher.
For example you get a sell signal and trin is at 1.20.
Once in the trade the market moves lower and trin
remains at 1.20. In this case even though the trin
trend is moving sideways the market is still bearish.
For trin to remain at 1.20 the volume in the market still
has to be coming in at that ratio to the downside for
trin to remain at that level. Even after you entered
your trade trin increases to 1.30 this was would signal
the market is getting even more bearish.
The other thing you have to keep an eye on is where

the market is in relation to yesterdays close. Since
trin is calculated using advancing and declining issues
this figure can seesaw back and forth if the day is
trading near the previous days close. This price
action can really affect the trin numbers and you
should wait for a clear direction before using trin.

If the market is trading a good distance above
yesterdays you can use trin as a gauge for how
traders are responding to the higher prices. If trin is
not bullish or even bearish that could be a very good
indication that traders are not comfortable with the
higher prices and a correction is in order.
Just the reverse would be true if the market is trading

much lower. The market needs volume in the
direction it is going for it to continue.
Using a longer-term time frame like a 15 or 30-minute

chart can give you a good handle on what is
happening for the day and which side of the market
you should be looking to make trades on.
The emini markets like the S&P, Nasdaq, and Dow

usually trend the best in the morning and afternoon.
Looking at a 30-minute trend chart can often signal
which side of the market you should be looking to
trade from for the afternoon trends.
The next chart is a 30-minute Emini S&P along with a

30-minute trin chart.
Looking at the trin chart on the 9th you can see that
trin kept on marching steadily higher indicating more
and more selling as the day went on. The market
built a trading range during the noon hour then broke
higher from this range in the early afternoon.
But according to the trin chart you would not have
wanted to buy this break out. But you could have
been ready to sell this market when the break to the
upside failed and catch a good move down.

The 11th was a good example of trin signaling trades
to the buy side. In many ways this day was a mirror
image of the 9th. The market once again builds a
range then a false break this time to the downside.
Even with this break trin is unable to even reach the
.60 level. The break to the upside was no surprise
and you could have easily caught this late afternoon
trend to the upside.
You could have also watched for a swing in the tick at

these points to confirm your trade with the trend.
When you look at days where trin spent most of the

time between .80 and 1.20 with no real trend the
market was very indecisive with a lot of whipsawing
back and forth.
Knowing what Tick and Trin are doing can be

invaluable when day trading the emini markets.

Momentum Trend Trader

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Momentum Trend Trader

This e-book is not to distributed, copied or sold in

Publisher: Momentum Trend Trader

Author: Orville Saari

Copyright © 2003 Orville Saari All Rights Reserved

Samples shown are for illustrative, educational and

Copyright © 2003 Orville Saari All Rights Reserved

To learn what it is based on.

How to better understand how the indicator works so

How to set it up.

Some trade set-ups.

It is not a black box trading system. It is up to you the

Copyright © 2003 Orville Saari All Rights Reserved

Determining the Trend of the Market

Determining important price levels in the market and

Copyright © 2003 Orville Saari All Rights Reserved

Most traders also make the error of using technical

In this e-book you will look at momentum not as

As you study the charts using momentum you will see

Its like a car that has momentum, the more

And it’s the same with the markets, the more

Copyright © 2003 Orville Saari All Rights Reserved

The difference between this indicator and most other

Price making a higher high while the momentum

Price making a lower high while the momentum

This can then be all reversed when price is making a

Price makes a higher low and the momentum

Copyright © 2003 Orville Saari All Rights Reserved

Copyright © 2003 Orville Saari All Rights Reserved

Volume profiles are created by using volume at price

On the next page you will see an example of a

Each profile represents a days trading. Each blue bar

Copyright © 2003 Orville Saari All Rights Reserved

In a very short time frame, or where the market is

But without the need for volume profile charts. As

So when you move on to How It Works part you will

Is the market moving away from this area? Or being

If you have access to volume profile charts take a

Copyright © 2003 Orville Saari All Rights Reserved

This longer-term approach takes care of the noise in

The graph below will give you a good visual to keep in

The blue portion of the triangle is shorter term moving

In the above graph the blue triangles represent

Understand that the larger triangle is also dynamic

Copyright © 2003 Orville Saari All Rights Reserved

It works very well since we are using two moving

The chart below shows the momentum line plotted on

Copyright © 2003 Orville Saari All Rights Reserved

Copyright © 2003 Orville Saari All Rights Reserved

Notice the red arrow is where the market momentum

On some charting packages you may have to plot the

It doesn’t matter either way.

Now as to using 78 and 39 as your parameters, they

But they are not written in stone and you want to

You can also experiment with a number more or less

Copyright © 2003 Orville Saari All Rights Reserved

In these examples you will look at pullbacks as

On the above chart you see momentum is up and

Copyright © 2003 Orville Saari All Rights Reserved

Taking a look at the chart again. The market rallied

Later we will look at this using price as a leader. It

Copyright © 2003 Orville Saari All Rights Reserved

You can simply insert another indicator and say you

But in the case above you would multiply the settings