How To Take Advantage of Price Momentum

Posted on by The INO.com Team

Today's guest is Chris Vermeulen, but most people know him as simply, "The Gold And Oil Guy". Chris has been trading for over 10 years, fine tuning his trading strategy year after year and continually improving timing, entry and exit points as the market evolves. Chris's latest strategy allows him to take advantage of intraday price action without even looking at intraday charts! I thought this was an interesting concept and wanted to share it on the Trader's Blog. Be sure to comment with your thoughts and visit Chris at TheGoldandOilGuy.com.

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Most traders just don’t have the time to track the market on an intraday basis. Crazy thing is, I found a way that takes advantage of the intraday price action while never needing to look at a single intraday chart. Now we can swing trade using the daily charts but get the added performance of watching the intraday chart price action. What also makes this strategy exciting is that it works with virtually any time frame, though each time frame and investment vehicle will require its own custom settings in order to track properly.

I call this strategy a Momentum Trend Crossover. It’s based on 2 moving averages that use intraday, day, or intra-bar price action to calculate its value. Also, a Donchian channel to track recent highs/lows for protective stop placement.

Below are three charts showing how it looks and works.

Close Up Of Momentum Crossovers – 30 Minute Chart
The chart below clearly shows how the two averages track very closely to one another. They both have slight variations in how they calculate their value. In short, when the blue moving average crosses below the red, the market is in distribution mode (down trend/sell bounces). And it’s the opposite for when the blue trend line crosses above the red, which is accumulation mode (up trend/buy dips).

The Donchian channel is used for entry and protective stops. This indicator has three parts, the upper, middle and lower bands. It tracks the most recent highs and lows providing clear protective stop levels for each trend.

60 Minute Chart – Moving Average Trend Trading Chart
This is an example of a 60 minute chart which I find very helpful in catching decent size trades. As you can see, when the moving averages crossover the market reverses direction. The really cool thing about this is that there is almost zero lag in this indicator. Many times the cross over happens before the price starts to drop.

For best results, I always make sure the next larger time frame is in favor of the trade I am looking to take. Doing this increased the probability that more trades will become profitable.

30 Minute Chart – Short Term Trend Trading
This chart shows key reversals and low risk entry points using the Donchian channel and moving average price levels. I know these are intraday charts I am showing you, but it can be used with daily, weekly, and monthly charts also. The intraday charts really show it in action and how choppy market conditions can be filtered to be smooth.

Momentum Trend Crossover Benefits:

  • Can be applied to any investment vehicle – Stocks, ETFs, Futures, Currencies
  • Customizable to work with any time frame
  • The trend is your friend and this always keeps you inline with the trend.
  • Eliminates the noise in the market during choppy conditions
  • Reduces emotions because you instantly can see when to enter and exit positions

My Thoughts On This Trading Model
I have never been a fan of moving averages because they lag the market so much. Over the years watching intraday price action in conjunction with the daily chart I found a way to make the moving averages carry over the intraday strength/weakness which in turn gives us an almost real-time, if not early, signal about a trend change.

This is one of the strategies I use within my trading newsletters to help generate low risk trading signals. Takes some of the guess work out of trading, that’s for sure!

If you would like to learn more about my trading alerts, please go to TheGoldAndOilGuy.com to see what I have to offer.

Best,
Chris Vermeulen
TheGoldAndOilGuy

39 thoughts on “How To Take Advantage of Price Momentum”

  2. Red, Green, baby poo yellow..... you can make the MAs any color you want, the fact remains these parameters are certainly close enough to accomplish the same thing the system seller wants to sell you.
    Actually this whole process can be accomplished with a single MA and the average price or the close price if you like that better.

  3. Will, You should have read my first comment. Your suggestion is incorrect because the blue average is smoother than the red, whereas your suggestion of 25MA & 23MA does not address the fact that the smoother blue average preceeds the red. Your suggestion results in the red preceeding the blue.

    It's a given that Chris wishes to attract subscribers. I'm shocked that the moderator permitted your post. I made a benign statement that was rejected, so my only question is why the inconsistency in the moderator?

    Ino, Please filter out obscenity.

  6. Chris- from reviewing your track record, it seems you have a winning system....I will await your MA report and then when I get out of some trades I am holding, will consider a subscription.

    Question though, it seems like alot of trades May/June 2010, but much fewer before hand back to 2008....any particular reason?

    Also, off topic- but I have not been able to get an answer elsewhere- does the IPHONE4 support marketclub charting? If not, any recommendations on phones?

    Thanks.

  7. Gee I wonder why he didn't provide the parameters of his big secret MAs....... WAKE UP... he's trying to sell you his services for crap sakes...GEEEEEZ are you guys asleep or stoned?

    As to the MAs on his first chart they appear to be simple moving averages, periods of 25 and 23 .... the donchian channel is a 14.

    Wake up and do a little home work.

  11. Thanks Ritchie.......those ma parameters look right......as for the Donchian channels,Scottrade doesn't have them.....but I agree with other posters,he should explain his method with greater precision.

  12. As I commented earlier I am working on a very detailed report which will explain the main settings I use for SP500 trading. The Moving average settings are not possible with any basic charting program like stockcharts etc... sorry.

  13. Is this goldandoilguy trying to sell us something? I mean why else would he make an interesting and graphic post and then leave out all the details that make his strategy possible?

  15. Hmmmm, let me attempt to solve Chris' mysterious averages for you!

    First, notice that the chart is using 30 minute bars. Next, notice that the blue moving average is marginally smoother than the red, implying that the blue has a slightly longer averaging period, yet it preceeds the red! Normally, a longer period average will lag a shorter period average, so I conclude that Chris has offset the shorter average ahead in time, only very slightly.

    My guess is the blue is a 24 period average plotted at the current bar, and the red is a 23 period average offset two bars into the future.

    Much the same result is achieved using a TRIX(24,14) indicator, perhaps even better.

    Check the chart I prepared at the following link (I'm not sure if non-subscribers can view intra-day data at StockCharts.com):

    http://stockcharts.com/h-sc/ui?s=SPY&p=30&yr=0&mn=1&dy=0&id=p04008168618

    Cheers, Jack

  16. just looking at these charts ,to me seems like he is using SMA and EMA of same time period ( 30 min, 60 min, daily, 7 day etc).With any momentum change EMA will crossover in that direction, before SMA because exponential moving averages reduce the lag by applying more weight to recent prices.Good for trending than trading mkts. No match for Adam's trade triangles.

  17. If u guys cant figure out more or less (not exactly)the parameters without them being given to u for free dont bother then. U wouldnt use them anyway. Thanks Chris for the great post.

  18. Hey folks I just posted this, I thought, but it didn't take. I just visited Chris' site and saw some examples that looked similar to these. In it he used the 8MA based on the open and the 8MA based on the close. Your charting software should allow you to change the MA parameters. I saw it in a PDF titled "Low Risk Setups Explained".

    Hope that helps

  19. I agree with all other comments, that this is more an advertisement in disguise than a real educational post.
    It is my impression that the MAs are of the open and close of the candles, and of equal time period. That would give us the crossing plus the close tracking of each other. Would have to play around with different settings to see which gives the best fit. I also have the impression that he must be using simple MAs because of the straightness of them.
    I guess the concept is clear from the article. From there it is a matter of playing with the parameters (also Donchian channel) to find what looks similar to these charts, and gives the right signals.
    Of course..... the easiest is to have it straight from the horses mouth! How about a follow up?
    Thanks,
    Robert

  20. Hey folks I just checked out his website and I saw some screen captures and it looks like the examples on his site are similar to these. The two moving averages he uses are the 8MA based on the open and the 8MA based on the close. You should be able to set your MA based on the open and close when you set your parameters. I saw this on "Low Risk Setups Explained" PDF. It didn't specify SMA or EMA.

    Hopefully that helps.

  22. I agree with chuck and david,but I do not expect details and am willing to try diff. config. myself. Then combine with my own settings and see how it goes. BUT- we do need some indication as to how far apart these two settings are!!

  23. Thanks so much for that.
    Even though values weren't shown for the moving averages, the concept is a great one to explore.
    I have found it very useful to have a MA set to Close at one value and a higher value set to Open.
    I like 13 Close over 21 Open but closer numbers can be used.

  26. Moving average crossovers is probably the oldest, most often quoted but least explained. They usually occcur mid way through most moves and as for the parameters they are adjustable to specific situations. What is left out are 2 very important points. The first is the size of stop loss using such a system on a daily chart. I trade currencies and that type of stop loss is HUGE. Second and least often mentioned and the most often needed aspect of trading is JUDGEMENT on the part of any trader. That only comes as a result of of a learning curve. That takes time and effort. Traidng that is described as a get rich quick scheme leaves out one pertinent fact; "it is the hardest way ever found to make easy money".

  28. Every investment vehicle and time frame uses a different set of moving averages and Donchian channel. I am in the process of making a detailed guide on how to setup your chart time frames and I use three, Daily futures 24 hour chart, 60 minute 24hour chart, and 30 minute 9:30-4pm chart. It will explain entry and exit points etc... If you would like to get this guide in 2-3 weeks once im finished it be sure to optin to my free newsletter at http://www.TheGoldAndOilGuy.com

  29. Article is useless as written. If going to send these out, shoud give more parameters, description or something. This is just a disguised advertisement.

  30. Interesting concept. What are the move avgs you are using on the 30min SPY chart?

    Thanks
    Jack

  31. Chris,

    Thanks for the commentary; can you toss us the moving averages you are using?

  33. Nice article but the entry point should be using MA's that are spaced a bit farther apart to make it easier to see. There is alot of information on how to do this on the internet. Also, entry points are more important than exits, without a good entry the exit is worthless.

  34. Great article but he failed to identify the settings on these Moving Averages. That would have been helpful. Please ask him to do so.
    Thanks
    Charles

  35. the technique is useless without the moving averge parameters. He never gave those. Am I missing something?

  36. What are these two moving avgs are you using? Are these two Mov. Avgs same for all time frames?

  38. Did anybody get anything out of this?
    It gives no details on settings for either moving averages or donchian channels and crossovers are hard to pinpoint.

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