Imagine that you are watching a TV show...you sit in front of your TV screen, watching a bus driving down the city street. That bus is packed with people screaming at the driver trying to tell him where to go next. You as a viewer, you try to predict where the bus is going and type your prediction in to a computer one block before the bus gets there.
Sounds like an impossible thing to do? Well some things could make that task easier. Some events could put the odds on your side...even just for a moment.
Scenario... if the driver stopped at the traffic light in the right lane and had his right-turn signal blinking, that would be a reasonable indicator that the bus is about to turn right...you could type in to your computer that the bus will turn right here and go on at least to the next cross street.
Of course, the bus driver could go straight anyway ( I'm sure we all have been in a situation where a driver in front of us had his turn light on for blocks without turning?!?...go figure), but the odds are that when people active their turn signals, they turn in the direction of that signal.
If the driver is crossing an intersection and you can see up ahead that the traffic lights at the next intersection is yellow and about to turn red, you could type in to your computer that the bus will stop at that intersection. Sounds about right? ...the driver could speed up right through the red light without stopping, and that does happens occasionally as we know, but the odds are that the bus will stop at the next light...even a police car with sirens on will slow down at the red light...
If the bus is speeding north (in the direction or trend) on the street at 60MPH, the odds are against it being able to stop on a dime at next intersection. It's very safe to say that it would be an exception to the rule and not the driver'sintention to stop so soon.
Those examples show how strong momentum puts the odds on your side that the trend will continue. In trending, if you get into a trend that has strong momentum behind it, you have a high probability trade that the trend will continue after you enter your position instead of coming to an end immediately after you place your trade...
I will explain what is "Momentum Indicator" and how to apply it on to trading under"Trading made Simple" series...
Thanks for reading and as always Happy Trading!
Source: Trading for dummies
