The Signal



The Ultimate Momentum Signal In Operation

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It's time to describe the Ultimate Momentum Signal in detail and it's characters.

Well the Ultimate Momentum Signal  is just like any other oscillator in Technical Analysis.  It travels between the values  -100 to +100,  wherein a -100 value 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 the daily close and is calculated on the basis of the daily  last traded / closing price  . For example if the Nifty Future was 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 and / 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. As the Signal has neutral values between -49 to +49, the trading system will not have positions in the market when neutral momentum is indicated. It is not an always in the market system.  ( However, some exceptions to the above is allowed where the short options mode of trade is used. This  is explained later in the page Entries and Exits.

For example, the Nifty Future and S&P Nifty closed  at 5214.95  and  5221.70 respectively on 20th January, 2010 and the Proprietary Momentum Signal showed a -100 reading on that day. This meant the existence of maximum negative momentum. See below the snapshot of the spreadsheet showing the sell signal.  

The Ultimate Momentum Signal Spreadsheet     

                                                                                                                 

The Signal 1 and the Signal 2 in the spreadsheet shown above are the respective Ultimate Momentum Signal values of the Nifty Futures and it's underlying S&P Nifty Index as on the closing of trade for the indicated dates and are calculated on the basis of the last traded prices or the closing prices.
Nifty Futures Chart as on 20th Jan. 2010



The market started to crash the very next day. And the reporters and analysts were 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 was history in the making.                                     

Anyone following the Proprietary Momentum Signal would have done two things on 20th Jan. 2010.  He/she would have closed all long positions and then entered in to short positions with very high levels of profitability. See below the snapshot of the spreadsheet after the sell signal.

 The Ultimate Momentum Signal Spreadsheet 




The Nifty futures declined 456 points within the next five trading days to hit a low of 4757.85 points on 29th Jan. 2010.  A chart of the Nifty futures showing the position as on 29th Jan. 2010 is given below.

                                      Nifty Futures Chart as on 29th Jan. 2010 


Well this is just one selected example of momentum shift which happened recently.  Not all trades may not be profitable like this. Some trades may scrape to earn the costs. Some may lead to losses. That's why the Risk Management is of paramount importance. The rules for trade management and risk management are available on other pages.
 
The spreadsheet showing the five year history of the The Ultimate Momentum Signal is uploaded to Google documents and is available for free download in Excel, Open Office and  PDF formats for any analysis or study. 
If you analyze the five year history of the Ultimate Momentum Signal beginning January 2005 , you can see for yourselves that the Signal has promptly indicated all major  trends  and  has withstood the different market conditions remarkably.  

Please read the page named Entries and Exits for more information.


Cheers and Prosperous Trading!


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