TREND STRENGTH AND WEAKNESS

Nov 3, 2023

The strength and weakness of a trend are determined with the help of price characteristics: momentum, projection and depth. First, about the first concept. Momentum is the speed of price movement. The driving force of the market directly depends on the imbalance between supply and demand (the name of the definitions is taken from the articles of Australian trader Lance Beggs). It is especially well seen in trends. We see market strength in the direction of the trend and weakness on pullbacks. In this case, momentum is not an indicator but a behavior of price movement. We observe the price and compare the current speed and acceleration with the past price movement.

How to Analyze Momentum 📶
Momentum can be observed by using the slope of the price movement chart. In such analysis it is important not to measure the momentum itself, but to compare the current price movement with the past one. Let's take a closer look.

Comparing The Momentum Of A Price Movement With The Previous One In The Same Direction 📉
First, you need to compare the momentum of the next price movements with the previous ones in the same direction. What do we see, is the price moving faster or slower than before? What can this mean?

For an example, in the chart below, let's compare slopes 1, 3 and 5. Here, the speed gradually decreases, showing a decrease in bearish momentum, i.e. the bears' pressure is weakening. On slopes 2 and 4, the speed increases, thus increasing the strength and momentum of the bulls. Therefore, the price is likely to continue moving towards those who are stronger, i.e. the bullish momentum becomes stronger than the bearish momentum.


Further, we look at sections 6, 8 and 10. Their slope is gradually decreasing and the chart is becoming more and more flat, which indicates the weakness of the bulls. While section 7 has become more steep than section 9. That is, the strength of the bears has increased.

This will not always be as obvious as in the chart above. Often there is no difference in speed and acceleration, and there is no clear understanding of who is stronger. When the momentum does not change, we can expect the price to continue moving in the same direction until the momentum starts to transform.


Comparing The Momentum From The Previous Wave In Different Directions 📈
Second, you need to compare the momentum of the current wave with the previous wave in different directions. Is price moving faster or slower than before? In other words, we are comparing a bullish wave to a bearish wave and vice versa.

In the chart below, section 1 is almost vertical, and wave 2, at a 45 degree angle. That is, this wave was weaker than the previous wave and the strength is on the side of the bears. The bullish wave 4 shows a slight increase in speed compared to wave 3. The difference is still insignificant, but the strength is on the bulls' side.


The bearish wave 5 shows an even smaller angle of inclination, i.e. a decrease in momentum. Now the power has definitely shifted to the bulls. We can expect the price to go up towards the strength, and the trend has really changed.

The reversal at the top can be analyzed in a similar way. Waves 6 and 7 show signs of an uptrend. Waves 7 and 8 show the same momentum, so additional information is needed. At 8 and 9 the situation changes and the momentum moves to the bears' side, which is confirmed by wave 10, whose momentum is weaker than that of wave 9, and now the trend has changed to a downtrend.


Deceleration Or Acceleration Of The Wave 📊
Third, at this point in time, is price accelerating or stopping? What does this mean? Let's look at this example, where you can see the slowing of the price and weakening of the momentum. But this is not necessarily a reversal signal, as long as the price is just starting to weaken.



Same thing with price accelerating and momentum strengthening. However, a sharp acceleration can signal a reversal, as strong movements can be a climax followed by a reversal. The climax movements are the result of the crowd, which tends to catch the movement and buys from the market at any price. But the price reverses quickly and the crowd gets trapped. Traders are forced to close their positions.


Therefore, it is necessary to distinguish between types of acceleration in order to understand which development we are talking about. Price acceleration is a sign of strength, but a sharp acceleration may indicate the climax of a move followed by a reversal.

Bitcoin on 15M Timeframe ₿
You can see the change in momentum here. The bullish momentum is weakening and the bearish momentum is strengthening. If we compare wave 1 and wave 3 there is a bearish momentum. But wave 5 has a shallower slope, which means that the momentum is decreasing and the trend is weakening. And wave 7 on the contrary has a good angle. Look at the bullish waves 2, 4 and 6. Here we can see the increase of the bulls' strength, which is confirmed by the decrease of the bearish wave 5. But the last wave 8 is very weak. And if we compare wave 8 and 7, as well as wave 8 and 6, it will be clear that the bears are gaining the upper hand and probably the downward movement will continue.


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