Momentum

The Momentum indicator shows how strong the trend is by measuring its
acceleration. The faster Momentum gains or loses speed the more the
trend accelerates. This is a leading indicator, which usually reaches a peak
before prices reach their highs and reaches a bottom before prices reach
their lows.

The trend is up as long as Momentum gets higher and higher, you can
normally hold on to your bullish positions. As long as it keeps reaching new
lows, you can hold on to your short trades. Every time Momentum reaches
a new high, the up trend is still accelerating. Every time Momentum
reaches a new low, the downtrend is still accelerating.
When the direction of Momentum changes, without having set a divergence
already, be prepared for a reversal.

You can use Momentum to catch large trends, for this purpose use a longer
time frame. If you want to spot changes in the trend quickly, then use a
shorter period Momentum.

When the direction of Momentum changes, the pattern could be the third of
a C wave or the third of a five wave. A small correction will take place to
form the 4th wave. The fifth wave still has to develop in the same direction
of the trend. When this fifth wave is underway, you can cover your shorts or
sell your longs.

Again a divergence is one of the most powerful signals, which normally

occurs in every five wave structure. The bigger the divergence the sharper
the reversal can be. If Momentum fails to make a new high or low, this
could be a C wave or a five-wave structure, which depends on the wave
structure of larger degree.

If you can recognize five waves in a C wave in a larger trend, which points
to the opposite direction, and at the same time Momentum makes a lower
top or a higher low, it is better to close your (trend following) positions at
once. After a C wave the reversal could be quite sharp. On the other hand,
if the larger trend is still up, this only could be wave 3 with wave 4 and 5 to
follow. Here you could hold on to your positions depending on the wave
degree you have determined. In a larger degree a bigger reversal can be
expected, making it worthwhile to exit. Later on you could possibly reenter
at a better price.

You can also draw trend lines or channels to identify support and
resistance in indicators. Usually Momentum breaks through its resistance a
long time (relatively speaking) before prices do.

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