Spotting Momentum Reversals And Deriving Price Forecasts
Spotting a reversal in the current momentum of the market and forecasting its price movement is every trader’s objective. Here’s a look at the X-sequentials X7 pattern, a technique that has been applied to the Dax futures, Nasdaq 100, and mini–crude oil contracts.
Daily financial market transactions based on news, fundamental data, and emotional decisions are reflected in prices as momentum. Momentum has direction and magnitude and can be seen on a chart in the form of uptrends, downtrends, countermoves, and trading ranges. The nice thing is that when you can identify a reversal in the current momentum of the market, there is a method with which you can derive price forecasts. Here’s how you can spot a reversal in the current momentum of the market and derive a forecast by applying the X-sequentials X7 pattern, forecasts based upon measured momentum reversals.
THE X-SEQUENTIALS X7 PATTERN
To apply the X-sequentials analysis, you need to use a bar chart with swing lows and swing highs identified. These swing highs and lows will enable you to draw the two lines necessary to apply the X7 pattern. These two lines are the base line and price line.
To locate an X-sequentials X7 pattern, first you have to sum up seven market moves. This will allow you to draw the base line. The base line is mandatory to locate the primary characteristic of this pattern: the momentum reversal. The diagram in Figure 1 describes the principle of a bearish X-sequentials momentum reversal.