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Trend Trading For Dummies by Barry Burns

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Chapter 12

Using Momentum Indicators to Test the Strength of a Trend

In This Chapter

arrow Measuring change in price with the momentum indicator

arrow Using the relative strength index to compare movements in closing price

arrow Keeping an eye on moving averages with the MACD indicator

A trend in the market isn’t a short-term move but rather an intermediate or long-term move up or down. A trend is easy to determine on a historical chart after the fact, but in the moment-by-moment activity of trading, you have to evaluate at the time you’re entering a trade whether you expect the market to continue to move in the direction it’s been trending.

This, of course, raises the question, “How can you determine whether the market will continue in the direction of the trend after you enter, or if it will change direction right after you get in?” One answer to that question is to look at momentum. Generally, in trading, the term momentum means price acceleration. Investopedia.com defines momentum as “the rate of acceleration of a security’s price or volume.”

tip.eps Think of momentum as the strength of the trend. When ...

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