Explanation in the Comment Thread

Mar 16, 2007: 12:11 AM CST

I wanted to draw attention to a conversation taking place between Jordan and I in the Comments section of the post “March 14th Analysis”

In it, Jordan asks me to clarify points concerning momentum divergences and the “Impulse Buy” pattern which illustrates the “Momentum precedes price” example.

I also wanted to note a new chart of McDonalds (60 minute) in line form and bar form which highlights the Impulse Buy pattern and Momentum divergence.

Although I trade other patterns, I find this set-up to be most profitable and most comfortable for me to execute consistently.

The simple explanation is that after a downtrend (reverse the terms for uptrend), momentum and selling decline and a base forms (you should expect a longer base to form than in this example). Equilibrium is achieved between buyers and sellers. Eventually, new information enters the arena and throws participants off balance, which creates (in this case) a strong upside momentum thrust.  The problem is that you cannot anticipate this momentum thrust, and divergences are often good only for small targets (and represent countertrend plays).

I look to enter a position following this momentum thrust (and the retracement against it) when price nears a key moving average. I then play for the most recent swing high. I repeat the pattern once price corrects back to the moving average and play again for the newly formed swing high. Stops are placed a short distance below the moving average which allows me to enter with a tight stop (but not too tight).

Another point to note (which I have not illustrated on the chart) is that the new momentum low on the left side of the chart corrects up to the moving average (when the bars turn green) and you would be wise to play this new momentum low short for an equal swing or at least a retest of the most recent swing low.  Entry would be around $44.25 and the exit target would be $43.  Risk would be about 25 cents at $44.50 (slightly above the declining 20 period moving average).

I plan to explore this idea in a further post. For the meantime, feel free to jump in and participate with us in this discussion – or at least scan it briefly.

3 Comments

3 Responses to “Explanation in the Comment Thread”

  1. wenli Says:

    This year's OPI nail polish fall collection is a free passport to AmericaOPI France.opi nail polish Popularly known as “Touring America”opi nail polish wholesale,OPI France the collection will make every woman fall in love with America's greatest citiesdiscount opi nail polish.OPI Katy Perry This is because each of the 12 shades is dedicated to a popular city in the United States.The 2011 collection contains different shades of pinkOPI All Shook Up,OPI DS greenOPI France,opi nail polish orangeOPI Texas,OPI Sunbelievable and brownOPI France.OPI France Compared to other collectionsopi nail polish, GHD are amazing hair straightenersDiscount GHD Straighteners,Discount GHD Straighteners if it's not some celebrity icon like Victoria BeckhamDiscount GHD Straighteners,Ghd Hair Straighteners Sale Madonna or someone like Gwyneth Paltrow using themDiscount GHD Straighteners,Ghd Hair Straighteners Sale then its that girl on the bus or that women in the club getting all the attention2010 New ghd Blue Serenity IV Styler.Discount GHD Straighteners People have really began to take note of the latest fashion accessory since they blasted into the market.Cheap Ghd Hair HoweverGHD New IV Styler,GHD IV Styling Set Hair Straighteners unlike Gucci handbags and Jimmy Choo shoes being must see items in the public eye these GHD ceramic straighteners are differentDiscount GHD Straighteners,2010 New GHD Red Lust IV Styler so very differentDiscount GHD Straighteners.Discount GHD StraightenersShort women often have problems in finding the jeans with perfect length and sizetrue religion jeans sale.true religion jeans sale My wife is a short woman and I know what it takes to find the jeans of her perfect fit and measurementcheap true religion jeans.cheap true religion jeans I am writing this article to help the short women know where they can find affordable jeans and what type of jeans they should look forcheap true religion jeans on sale.MEN'S JEANS To start withMEN'S JEANS,WOMEN'S JEANS the best place to find jeans for short women is at the True Religion Sale storeMen's Bootcut.Men's Flare The sale is announced at least 4 times every year. Watch out for these sales because it is the best place to find jeans that fit your size and heightMen's Skinny.Men's Straight LegThe sale offers cheap jeans of various typesWomen's Skirts&Shorts.cheap true religion jeans on saleMany of these are ideal for short womentrue religion jeans sale.true religion jeans sale Following are some of the jeans you can find at this sale:Straight leg jeans<ahref=”http: title=”WOMEN'S JEANS” womens-jeans-c-3.html”=”” http://www.googletruereligionbrandjeans.com=“”>WOMEN'S JEANS
    http://www.sanalkahve.com/user/wenli/blogs
    http://wenli.podbean.com
    http://blog.cnfol.com/awenli
    http://wenli.allmyblog.com/
    http://wenli.blogoak.com/
    http://american-idol-stars.com/blog/awenli
    http://www.kaka365.com/blog/blog.php?uid=6415
    http://vidi.co.il/profile_blogs/wenli/
    http://weili.blogdetik.com/
    http://wenli.mylivepage.com/blog/index/
    http://www.thoughts.com/wenli
    http://prisap.org/blogs/posts/wenli
    http://wenli.blog.cz/
    http://wenli.nipox.com/
    http://shenen12.manablog.jp/
    http://www.adultblogs.com/users/wenli/
    http://www.holatu.com/user/wenli/blogs
    http://fotolode.com/blogs/wenli/
    http://wenli.blog.forexstar.com.cn/
    http://yuxin123.inube.com/
    http://www.graphicdesigncommunity.com/blogs.php?action=show_member_blog&ownerID=59375
    http://www.awenli.livejournal.com/
    http://shenen011.blog.com/
    http://blog.sohu.com/people/!YTE4NjUwMjIzMzEwQDE2My5jb20=/181146275.html
    http://www.landyconnect.co.uk/profile/wenlihttp://www.blurty.com/users/awenli/
    http://wenli.insanejournal.com/
    http://www.equestrianblogging.com/blogs/awenli
    http://www.darksiders.net/user/awenli/blogs
    http://www.safetyissues.com/community/blogs/posts/wenli
    http://www.freedatingsiteahead.co.uk/blogs.php?action=show_member_blog&ownerID=4764
    http://wenli.beeplog.com
    http://www.comunidadinmigrante.com/blogs/
    http://gvrl.com/blogsearchresults.asp?basicsearch=wenli
    http://17102655.blog.hexun.com/
    http://www.awenli.19dog.com/
    http://hi.baidu.com/awenli/blog/
    http://blog.sina.com.cn/u/2230467901
    http://awenli.fotopages.com/
    http://www.blogusers.com/sme_blog.php?u=wenli&action=view_cat&cat=5335
    http://a18650223310.blog.163.com/
    http://www.bambinidisatana.com/network/u/wenli/
    http://imfriends.net/user/wenli/blogs/
    http://www.camnews.org/social/pg/blog/wenli/
    http://www.muslimduniya.com/member/view_blog.php?profile_id=780/
    http://www.crimetime.co.uk/community/aweili/blog/
    http://www.filipinopeople.com/user/abwenli/blogs/
    http://blog.zol.com.cn/bweili/
    http://www.kerchoonz.com/user/awenli/blogs/
    http://www.charleyhow.com/user/wenli/blogs/
    http://www.satyamite.com/user/wenli/blogs/
    http://www.panaspace.com/user/wenli/blogs/
    http://www.mygatheringspace.com/wenli/
    http://groupeiservices.info/blogs/posts/wenli/
    http://www.youaction.com/user/wenli/blogs/
    http://www.nutricionistas-online.com.br/blogs/posts/wenli/
    http://www.mysavvypet.com/user/wenli/blogs/
    http://www.gwa5.net/user/wenli/blogs/
    http://mystreet.ru/blog.php?user=wenli/
    http://lobbymagazine.gr/dolphin/blogs.php?action=show_member_blog&ownerID=2523&category=2678/
    http://firstdatesf.com/blogs/posts/wenli
    http://www.igolf.to/view_blog.php?profile_id=8355
    http://gem.socialgo.com/members/profile/3843
    http://www.girlmakeup.org
    </ahref=”http:>

  2. cartier anelli uomo Says:

    Toccando il alto a sinistra e destra in basso. Anello Berlingot, ros oro anello fidanzamento cartier prezzo e quartzrose, Lovingstone, anel anelli diamanti cartier prezzi lo d’oro imperiale, insieme con un quarzo ros ros, Cartier, anello Veleno d’oro e rosa ros Spar, Cartier Fornitura Zucchero insieme più intercambiabili, ros oro, diamanti in questo caso è necessa cartier anelli prezzi r

  3. Bread And Butter Says:

    I always love this brand of clothing! do check out this great online shop for Women True Religion!