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Trading Order Flow (Trend) vs. Momentum

March 10, 2009 Equity Trading No Comments

Being able to distinguish between order flow/trend and momentum is important!

Why? …. because it determines the profitability of a trade. Generally, trading on order flow (longer term) will yield much better gains than trading on momentum (shorter term).

What? … order flow is what the “big money” is doing. Individual traders are best served by piggy backing on insitutional moves.

 

How? … by paying attention to a stock’s price action and its moving averages on the 15-minute, hourly, and daily charts. When all three are moving in the same direction, it’s due to order flow.

When the price is moving against the larger trend, it is due to momentum, and only good for a quick scalp… like today.

Looking at the S&P 500 ($SPX):

Daily Chart: Simple Moving Average is Down.

Hourly Chart: Simple Moving Average is Down.


15-minute Chart: Simple Moving Average is Up?!

Today. Using Fast Stochastics to confirm Buy and Sell activity.

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