CHAPTER 9
Intro to Momentum, Including Momentum in Trading

Section 9 addresses momentum indicators, including the popular Stochastic and RSI. Momentum indicators can be used for entries, employing crossovers, exits using overbought/oversold signals and momentum divergence, and for filtering other indicators' signals for significance. These techniques are addressed in Section 9. (See Section 12 for oscillators, including the MACD, the Ultimate Oscillator, and Kase's momentum indicators: the Kase PeakOscillator and KaseCD.)

QUESTION 9.1   O US Daily with Momentum Indicator

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  1. Can you identify this indicator?
  2. Identify each line.
  3. Draw in at least one instance of bullish divergence or bullish mini-divergence.
  4. Identify an instance of a drop or rise out of OBOS.

QUESTION 9.2   R US Daily with RSI exponential with simple MA (14, 3) and (50, 8)

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  1. Identify at least one instance where RSI (14, 3) performed better than RSI (50, 8).
  2. Identify at least one instance where RSI (50, 8) performed better than RSI (14, 3).
  3. Draw in bearish divergences on both indicators.
  4. Draw in bullish divergences on both indicators.
  5. Which RSI has a flat divergence?

QUESTION 9.3   Y US Daily with SMAs (5, 13) and Kase Permission Screen

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A longer bar length filter, Kase Permission Screen, displays green giving permission to go long and purple giving permission to go short.

  1. Circle areas where long whipsaws would have been avoided due to the Permission Screen allowing short trades only.
  2. Circle areas where short whipsaws would have been avoided due to the Permission Screen allowing long trades only.
  3. Circle any whipsaws that were not avoided.

QUESTION 9.4   R US Daily with RSI exponential with Simple RSI Average (50, 8)

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  1. Using a Stop and Reverse system, Short exit and long entry = RSI crosses above RSI MA, Long exit and short entry = RSI crosses below RSI MA, draw in up arrows for short exit, long entry, and down arrows for long exit, short entry.
  2. Add an exit signal based on momentum divergence. Mark with X.
  3. Identify a point at which a crossover took place before the momentum divergence.
  4. Identify where momentum divergence exited the trade earlier than a crossover.

QUESTION 9.5   Y Daily with Slow Stochastic

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  1. Mark the date range over which candlesticks are filtered by the Stochastic as bullish, and explain your rationale.
  2. Mark the date range over which the candlesticks are filtered by the Stochastic as bearish, and explain your rationale.
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