March 19 New Momentum High – Markets (5-min)

Mar 19, 2007: 10:19 AM CST

I wanted to post a lunchtime chart of the QQQQ’s which had the best 5-minute New Momentum High and “two trade” Impulse Buy set-up I’ve been describing. The DIA and SPY had almost identical impulse buy setups. Remember, after a new momentum high, wait for a pullback (ideally to a key moving average) and play for the target just beyond the most recent swing high. Usually there are three pushes up, but the highest probability comes only for playing the first two upswings following the new momentum high.

Remember that these trades are good for “scalps” only, but the pattern can be applied when observed on any timeframe. Don’t get greedy and “overstay your welcome”. Play for the highest probability target and move on. Beware the natural momentum divergence (decreasing momentum on each upswing) that accompanies this pattern. Consolidation (or possible retracement) is more likely than further upside potential (in this chart).

Your stops are placed at least 10 cents from entry.

Charts courtesy TradeStation. 5 minute charts – QQQQ.

4 Comments

4 Responses to “March 19 New Momentum High – Markets (5-min)”

  1. Rahul Says:

    What are the indicators in the lower frame of the chart?

    I have similar trading style except on daily timeframe. But I do not use any lower frame indicators to help in decision making so I would be interested to know how you use them. I use plain price action to make decisions and use keltner boundaries to determine targets. Also, I look to the higher timeframe to see how much of a welcome can be overstayed :). If the move is in the direction of higher timeframes dominant move, you can take more liberties.

    Rahul
    http://www.tradernirvana.com

  2. moom Says:

    From an e-wave perspective you’d expect two such opportunities (waves 3 and 5). I just switched to short NQ on Globex 1781.75…

  3. Corey Says:

    Rahul:

    I think you’ve got the main idea! Higher time frames provide stronger directional “winds” or biases which highlight stronger (or higher probable) moves on the lower time frame charts for precision trading and trade management. It’s like playing only for the “pure” swings of the move.

    I also use Keltner Channels which help in decision planning and – right – exit targeting.

    I use the 3/10 MACD Oscillator, which is both a momentum and trend indicator. It is essentially a standard MACD with settings 3, 10, and 16 (rather than 12, 26, and 9).

    Any readings in the oscillator are already in price (like momentum highs – the gap today served as the initial trigger that we should be playing the “impulse buy” set-up… it was only confirmed by the oscillator. The oscillator also warns me of decreasing (or increasing) momentum in the form of price divergences, also which are visible (through experience) in reading pure price swings.

    I would trade off the daily charts more than I do, and do for choice swing trades, but I am uncomfortable with excessive overnight risk and manage this through “pure plays” on intraday frames. I am working on this in my strategies to take on more risk by playing off higher time frames and for larger targets with reduced stress.

  4. Corey Says:

    Moom:

    True, from an Elliot Wave standpoint, waves travel in three pulses and from these pulses, measurable and predictable distances can be achieved. These can provide concrete rules which lead to concrete trade entries and profit targets within the structure of the wave.

    From a pure Elliot standpoint, you could say I play specifically for waves 3 (longest) and wave 5, yes. After that, the pattern loses its predictability.

    The “Impulse Buy” pattern is a type of Elliot Wave pattern, but I do not look for the parameters that would fit the core of the Wave Theory. I identify a momentum burst/thrust and play two swings in the direction of the initial impulse. I have found more times than not, through my trading, that the third wave is either the weakest, or provides little to no follow through, especially on intraday frames. Through my experience and testing, the highest probability trades originate within the first and second swings up (or down) following the momentum impulse (which is impossible to forecast).

    Nevertheless, following the pattern, you would be right in that odds favor either consolidation or reversal, which should forecast your short trade to be profitable. Momentum declines on each upswing, but I find trading against the trend difficult. Today, you were right to short the NQ but it was a choppy ride down, and a countertrend position at that (at least on the 5-minute charts).