Email of the day on technical indicators
Comment of the Day

July 11 2019

Commentary by Eoin Treacy

Email of the day on technical indicators

Do you like/follow momentum given that momentum often leads price?

Eoin Treacy's view

Thank you for this question which may be of interest to other subscribers. Generally speaking, I look at momentum indicators a couple of times a year. This service is more about chart reading than technical analysis. The basis for our behavioural approach is to assume everything you need to know about the market is right there in the price action if you are willing to allow yourself to see it.

That is not to say that people can’t find value in the use of momentum indicators particularly with divergences in the trend of indicator with that of the instrument tracked.

However, it is also worth remembering that momentum indicators are not particularly suited to breakout scenarios. Ranges are explosions waiting to happen and expectations for future potential deteriorate the longer the range persists. When a breakout occurs, it unleashes waves of new buying so the market can go overbought and stay overbought for as long as the breakout lasts. The nature of breakouts is they are surprising in their ferocity and prices often rise further than people thought possible while inside the range.

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