Michael J.

Parsons

future price action and serves to provide a stop in case the market should
snap back against you. Changes in momentum are usually handled by
way of "fanning" channel li nes, so any prior channel line would only be
used for setting a stop, at least until a new trend was established. But
there are times when a market accelerates simply by jumping over a prior
outside channel line, resulting in the need for a new outside channel line
rather than inside channel lines. Figure 3-7 provides an example of this
phenomenon.

This channel line that once acted as

resistance now becomes support
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Changes in momentum can occur for a number of reasons, but they generally
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involve two elements or the lack of them, greed and fear. These elements will
increase or decrease participation, impact the overall bias of a market, and
affect whether individual traders remain settled with their trades or choose to
trade often. Just as trends tend to continue in their chosen direction, changes
in momentum tend to beget similar changes in momentum. Ifa market is
accelerating, it is likely to continue to accelerate. If it is slowing down, then it
is li kely to continue to slow down. Even with this tendency it is good to
remember that highly accelerated moves tend to be short lived, burning out in
a blaze of glory.
If momentum changes are short l ived, they are usually replaced with trend
shifts. The difference between the two is that whi le a change in momentum
will use a prior channel line momentarily and then later develop its own, a
trend shift is more likely to continue using a prior channel li ne or at least
parallel it for quite some time.

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