Martin Pring on Market Momentum

358 Pages·2005·33.43 MB·English

Pring’s many fans will want to add
this volume to their collection ..."

John}. Muyphy, author af Technical Analysis of the Futures Markets
and tntermarket Technical Analysis, and technical analyst for CNBCTV

WWW.TRADING SOFTWARE COLLECTION.COM

ul Prin

Market
omentum
MARTIN PRING
ON MARKET
MOMENTUM

MARTIN J. PRING
To my wife Lisa
Contents

Chapter 1... 1
‘AFew Words on Time Frames. eee 2
Principlas of Momentum Interpretation 4
‘Qverdought and OVERSOId srresesnennnnnnnrn nnn 4
Divergences .. pugeabilrtiearrmntbr eres t
Significance o' a Divergence 14
‘The Divergenea Trap. k weer
Compiex Bivergences, a

Chapter 2
‘Some General Though's
Trendiines...
‘The Signiticance ta Trandine

Price Petters

Peak and Trough Analyeis

‘Advance Breakdowns and Breakouts

Moving Averages and Momentum Indicators .
Double Moving Average Crossover
Moving Average Directional Chango.
Overbough/Oversold Crossovers:
Equilibrium Crossover Signals
Derivatives of Moving Averages
Chapter 3
Introduction
Construction...
verbougat and Gvercoid Laval.
Choice of Time Spars.
Short-Term Tronds
Intermediate-Term Trends...
Long-Tarm Trands
Trendline Construct
Price Patterns
Divorgences
Complex Divergences ...
Moving Averages of ROG indicators
Contents

Chapter 1.
‘AFow Words on Tne Frames
Principles of Momentum Interprotation.
Qverbought and Oversold
Bivergences .... ae

Significance cf a Divers 14
The Divergence Trap. 20
Complex Divergences: 21

Chapter 2
Some General Thoughts
Trandlines.....
The Significance of a Trending
Price Patterson
Poak and Trough Analysis:

‘Advance Breakdowns and Breakouts..
Moving Averagas and Momentum Indicators...
Double Moving Average Crossover.
Moving Average Directional Change...
Qverbought/Overscid Crossovers:
Equilibcium Crossover Signals...
Derivatives cf Moving Averages:
Chapter 3
Introduction.
Construction ons
Overbought anid Oversoid Levels,
Choice of Time Spans...
Short-Term Trends
Intermediate: Term Tred8 nme nmsen en
Long-Term Trends
Trendline Construction ..
Price Patterns.
Divergences

Complex Divergences
Moving Averages ol ROC Indicators
Contents x

Chapter 8.
Volatility

What Ie Directional Moverent?
True Range »
‘Average Directional Movement Indax ‘ating 190
Plus and Minus DI Crossovers .. .

Interpretation ....
Alternative Interpretation
Chapter 9...
Tne Commediy Selection Incex «
‘The Parabolic Syston

Chapter 10.
Introduction ae
Herrick Payolt index
Accumulation Swing Index...
TRIX Indox.

Commodity Channel Index
‘The Ulimate Oscillator
Chapter 11

Introduction

Principles of Vlume intoraratation
Rate-of-Change of Volume.
Volume Osciliator
Upside/Downside Your.
Demand Index

Chapter 12
Introduction
Types of Breadth Momentum...
Diffusion indicators

Momentum and Relative Strength
Miscellaneous Momentum Incicaters

Resources :
Index ..
Contents: &

Chapter 8...
Volatility...

What Is Directional Movement?
Trus Range...

‘Average Directional Movement Incex Rating
Plus and Minus DI Crossovers
Interpretation i
Atemative Interpretation ~..
Chapter 9

The Commodity Selection index -
The Perebolic System
Chapter 10 7
Introduction...
Herrick Payot index
‘Accumulation Swing Index
TAIX Index.

Commodity Channal index...
‘The Ukimate Oscillator

Chapter 11
Introduction.

Principles of Volume interpratatio
Rate-of-Changa of Volume...
Volume Oscilator....
Upsice/Downsida Voume
Demand Index um

Chapter 12.
Introguetion....
Types of Breadth Momentum ...
Diffusion Indicators

Momentum and Relative Strength

Miscellaneous Momentum Indicator: 316
Resources tions weds
Index... : 330
INTRODUCTION

‘Overthe years many generalbooks on techical analysis, such ae
John Murphy's Technical Analysis of the Futures Markets ot my
Technical Analye's Explained, have covarad tha subject of mo-
mentum in cne or two fleeting chapters. Because thase books
address a wice range of concepis and approaches, they lsave
insuffciest room to explore the subject in the depth tnatit requires.
This bock, which is completely deveted to momentun, has been
writen from the perspective of filing that vacuum.

Tomy knowledge, this the first aok to ba completely Gavoted
to this subject. This is ar important pint because momentum is
arguably the most widely used but least understcoc concen’
‘empioyedby traders. Ihave written Market Mamentuntto delve into
the topic a litie deeper with the hope of helping youto get e better
grasp ofthe subject. A supplementary objectiva is to broadan your
horzen by descr bing in-depth a number of diferent indicators. By
and large, the book $ @ compendium of indicators that have bean
developec andused over the years. Some new “wrinkles for some
of these concepts are offered for consideration, as well as a few
new indicators of my own

“Tho book wil have a spacial appeal to the growing number cf
traders anc investors who use computer software charting pack-
‘ages. This group includes individuals as wall as the huge number
of traders at major financ’al institutions around the world, For this
reason many ofthe examples willbagiobalin ature ancnot limited
to U.S. markets, Since the princisies of technical analysis can te
applied to any traaly traded market, the wide scope should not
hinds: U.S.-pased tracers and investors wha may limit their activ-
ties to local markets,

‘Anintroduetory knowledge of technical analysis isassumed, so
‘Market Momentum is primarily targeted at those who have already
‘gained some experience: namely, those traders andinvestors who
fave made mistakes and want to learn how to aveld making them
again. The book departs from mos! financial pubiigations, which
promise instent anc easy wealth. fou are looking for such e Holy
Grail, don’t read any further. | eannot help you; nar can anyone
else. I, onthe other hand, you have already developed a curiosity
and fascination with charts end want to expand your knowledge,
please read on.
INTRODUCTION

(verthe years many general Docks on technical analysis, suchas
John Murphy's Technical Anaiysis of the Futures Markets or my
Technical Analysis Explained, nave covered the subject of mo-
mentum in ona or two fleeting chapters, Because these books
address a wide range ol concepts anc approaches, they leave
insufficient room to exolore the subjectin the cepth that t requires
This book, which is completaly devoled to momentum, has been
writen from the parspactive of filing that vacuum

Tomy knowledge, this isthe frst bock to ba completely devoted
to this cubject, This is an important point because momentum is
arguably tha most widely usad but least uncerstocd concept
‘employed by traders. nave written Market Momentumtodelvainto
the topica little Cenper with the nope of helping you to cata beter
grasp of the subject. A suaplemnentary abjactive isto broaden your
horizon by describing in-depth a umber of different incieetors. By
and|arge, the ook is a compendium of incicatars that nave been
developed and used aver the years. Some new "wrinkles" for some
of thesa concepts are offersd for consideration, as wall as a few
ew inciaators of my own.

‘The book will have a special appeal to the growing number of
tracers ard investors who use computer software charting pack-
ages. This group includes individuals as well as the huge number
Of traders at major financial insttuticns around the word. Far this
reasen many cftheexamples willbe globalin nature andnot limited
to U.S. markets. Since the principles of technical analysis can be
applied to any fracly Wraded market, tha wide scope should no’
hineer U.S based tracers and investors who may limit their activ
ties to local markets,

‘An intreductory knowledge cftechnicalanalys'sis assumad, so
Market Momentum isprimarily targeted at those whe have alreacy
gained some experience; namely, hose traders and investors who
ave made mistakes and want to lea how to avoid meking them
‘again. The book departs from most financial publications, which
promise instant and easy wealth I you are [coking for such @ Holy
Grail, con't reed any further. | cannot help you; nor can anyone
else. Ii, on the othar hand, you have already developed a curiosity
and fascination with charts and want to expanc your knowledge,
please read on.
Intreduation vt

youshculdn'take my wordforit-Testthem foryourself Inaddtion
| suggest that you carry out the same tests on the indicators that |
review favorably.

‘AS used here, the term “momentum” refers tothe volosity ota
price trend. This indicator measures whethar @ rising trend Is
‘accelerating or dacelerating or whethar prices are declining at a
faster oF slower pace There is one indicator included in many
charing packages, and i's literally called “momentum.” Ibeliava it
is @ misnomer because “momentum is really a generic term that
fembraaos a range of speci indicators that attempls to measure
this velocity factr. Momentum israprasented in graphie form aga
fluctuating ine that is continuclly oscillating from one extreme to
the other. Allmomentum indicators oscillate, £9 tis raasonable to
call nam “oscillators” as an alternarive descritive tl, | mention
this because meny books refer to certain typas af momentum
indicatorsas “oscilators'andcthorsas*momenum indicators." To
me they are synonyms, and they are used as such inthis book

In today’s fast-paced global marketplace, there ere mary
vehicles thal can be treded: currencies, commodities, bonds,
stocks, stock market incaxas, and presiou's metals—just to nas
a few. The same principles apply for treding all of them. The wo
exceptions are open interest, which is an aspoct of ‘utures date,
anc opening prices, which are not avalablefor stocks. Throughout
thabook! use the term security" when referring ingoneralto these
Vehicles. This usage avoids constant repetition of the individual
tems

The first two chapters describe the principles of momentum
interoretation. It is my balief that each momentum inciator is
subject to these eame orinciples of interpratalion; therefore, itis
better to deal with them at tne outeet than to be forsed to repeal
them wnen describing the specific indicalors themselves. Each
ingioatorhes its own iciosyncracies, andeach amphasizes speciic
charactaritios of 1nose momentum principles. These characteris-
tics are described in leter chapters.

Ihisafactthat prices in any ‘teely traded markotare determined
‘more by the atiudo of traders to the emerging fundamentals than
by the fundamentals themselves. This means that markets (/e.,
pica trends) are essentialy driven by psychological forces. Wa
knew trom our own pareenal experiance in tne mare's that our
femations dart from one extreme to anothe’—from greed to fear,