The Momentum Maximizer Method
When a market trend is in place, buying into it can be risky if you do not have an effective plan for choosing an entry point and protecting capital against a possible pull-back.

The goal of the Momentum Maximizer Method, is to take a position in an already up-trending market. With this specific strategy, we will be buying on market weakness but in the absence of any bearish divergence. What this means is that after the ETF has experienced a break out and has begun to trend, we want to hold off buying until the market pulls back so that we are not buying when it is excessively extended in price.

A pull-back occurs during periods of relative weakness, with profit takers out pacing new buyers of the Exchange Traded Fund. This occurs in bull markets, as some investors decide to lock in profits while others hesitate in their buying.

The danger of buying on weakness is that you may find yourself entering the market, just in time for the trend to break down. Bill Poulos defends against that potential by searching for bearish divergence and averting the trade if it is present.

Bearish divergence is a circumstance where the trend is evidencing one thing and market momentum is revealing another story. One is signaling new price highs, the other is suggesting a break down in prices. As such, you have a divergence.

The entry rules are objective and clear, and Bill Poulos does a superior job of explaining them in detail. When suitable circumstances exist, then limit orders are placed to buy the market at the desired price level. Use of the limit order guarantees that you are entering the market at an area of likely support and not when prices are extended off of those levels.

Upon entry, stop orders are used to safe guard capital. The initial stop loss order is placed so as to avoid "whip saw" caused exits, while still exiting the trade once the market trades to a price level that is incompatible with a healthy uptrend.

If the trend is sustained, you will then be focused on an initial profit exit that will take half of your capital out of the market to lock in profits, while letting the remaining part of your capital to experience gains for as far as the market will take your trade.

The effect of this Momentum Maximizer Method is that you are buying the market on weakness and then selling into strength. This is exactly how a trader wants to manage a position.

The next stage in the life of a trend involves a correction and subsequent rebound off of support, which is exactly what you will learn to trade with the ETF Profit Driver Trend Rebound Method.

by TheOptionClub.com -

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