Reads, “The law of momentum, under normal market conditions, wider color bars will be followed by the same colored bar 80% of the time.” Today this market law kept me on the right side of the market. The QQQ put in a series of green bars on the hourly chart yesterday before going sideways into the close and finishing with a small rally back to the top of the lunch time base and a final green bar on the 60 minute chart. Today the market gapped up and sold off back into the top of yesterday’s afternoon base with no bounce. When the first hours bar closed red, even with a small bottoming tail, I expect the next bar to close red, so I continued to play my shorts.
1st Hour
As the 2nd bar closed red, I stayed short and expected again the market to close red on the hourly chart for the 3rd hour.
2nd Hour
And again the 3rd hour closed red and again I stayed short expecting the 4th hour to close red.
3rd Hour
Now, we are taught to expect a normal 3-5 bar swing, so really after the 3rd red bar down, you should be thinking buy, but I’ve found that you better wait to you get a COG (closed green bar) before you take a long play.
4th Hour
The law of momentum has served me well as it did again today. Keep it in mind the next time you find yourself trading against the hourly chart…
