“Every object in a state of uniform motion tends to remain in that state of motion unless an external force is applied to it.”
"Prediction is very difficult, especially if it’s about the future."
Some investors will buy and sell securities strictly based upon the action of the stock's price over time. I'm not able to do that because I'm simply not that smart. I have to rely on momentum indicators to confirm or deny my suspicions when looking at the stock's chart and price action.
The momentum indicator I rely on the most is the MACD. The MACD's best attribute is identifying turns in the market (this is very important for swing traders!). When it's below the zero line and beginning to turn up, I take notice because something's about to happen. When it crosses it's signal line, I also take notice. When it crosses from below to above the zero line, I take notice once again.
And when it does the exact opposite of these things, I also take notice.
The other two indicators I like to use are the RSI and the ADX. The ADX tells me the strength of the move that might be under way. It lets me know if the movement up or down has any power behind the move. It therefore lets me know if the move will have any stamina or staying power to it. The RSI, on the other hand, lets me know when the move is getting over heated or nearing exhaustion.
These three indicators combined simply confirm for me what I think I'm already seeing in the movement of the price of the stock. If all three of these indicators tell me the same story then they're giving me the green light to make the trade. If they're incongruent, that tells me something too. It tells me to either look deeper into the fundamentals of the company to understand why, or to move on to another trade.
In the final analysis, the past will provide me with a lot of information but it won't guarantee the future direction of the price of the stock. Stocks will go only where investors push them. My simple intent is to determine if a stock's price is moving up, moving down or going nowhere, to determine if a stock's turning up or turning down, and to determine the strength of the movement. And hopefully, after all is said and done, I'll be on the right side of the trade.
Yogi Berra couldn't have said this any better.
"The future ain’t what it use to be."