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Thursday, February 4, 2010

Some More on the Ultimate Momentum Signal


The history session is over for now. It's time to write something more about the Ultimate Momentum Signal and it's characters.

Well it is just like any other oscillator. It travels between -100 to +100, wherein -100 indicates maximum downward momentum and +100 the opposite. Trades are to be entered only when the momentum shifts from
one direction to the other at around the daily closing time. For example if the Nifty Futures were showing a positive momentum for the past one or two weeks (and/or neutral momentum as explained later) and at the close of today the Momentum  Signal is showing a minimum value of -50 a short trade can be initiated. Similarly if the immediate past momentum was downward or neutral and at the close  of today the Momentum Signal is showing a value of +50 or above a long trade can be initiated. 

A Momentum Signal value of +50 to +100 shows upward momentum. Values between -49 to +49 show a pause or neutral momentum. A signal value of -50 to -100 show downward momentum.

For example Nifty Future and S&P Nifty closed  at 5214.95  and  5221.70 respectively on 20th January, 2010 with the Proprietary Momentum Signal showing a -100 reading, meaning maximum negative momentum. (See below the snapshot of the spreadsheet showing the sell signal). The market started to crash the very next day. And reporters and analysts are scrambling  to assign reasons for the crash. It was just a case of exhaustion of momentum and the market was waiting for any negative news. The rest is history in the making.

                                                                                                                      

Anyone following the Proprietary Momentum Signal would not only had closed all long positions and entered in to short positions with very high levels of profitability. See below the snapshot of the spreadsheet after the sell signal.




Well this is just one selected example of momentum shift which happened recently.  Not all trades may not be profitable like this. Some may scrape to earn the costs. Some may lead to losses. That's where Risk Management is of paramount importance. More on the Risk Management will come in the later posts.

Happy Trading!!!!  


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