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Introduction to Excessive Momentum Trading

The distinctive difference of Trend filtered ZigZag indicator is that you can observe peak and trough deviated from actual highest and lowest in your chart. This is probably something new to the capabilities of the typical ZigZag indicator. Typically, ZigZag indicator will always place peak at the highest level and trough at the lowest level. This is not the case for the Trend Filtered ZigZag indicator. For example, while peak in Trend filtered ZigZag indicator stops at 1.1000 for EURUSD, the high of EURUSD can go above 1.1000 towards 1.2000 or 1.2500. Now the price and the peak are being deviated from each other. I call this unique phenomenon as the Excessive Momentum. Technically this behaviour is happening when the gap between Fractal wave and actual trend are growing. This happens when actual trend moves beyond the defined range by Fractal Wave. Up until this explanation, you might be still plain confusing with the concept of excessive momentum. To make things easier for you, consider that trend as the force behind the continuation move in the market whereas Fractal wave as the force behind reversal movement in the market. Typically, we will have these two forces in balance in the market. During Excessive momentum, this balance is broken. It means that the continuation force was greater than reversal force since the trends was driving further beyond the defined range by Fractal wave. Now probably you are starting to make some sense. That is good. Your intuition will start to tell you that this excessive momentum can provide good trading signals. Here is one-piece definition of the Excessive Momentum. Excessive momentum is the broken balance between continuation and reversal force in the market. When the balance is broken marginally, we can consider it as the market anomaly. Two potential scenarios can drive the occurrences of Excessive momentum. Firstly, the excessive momentum could be caused by some irrational price reaction like the late comers buying stocks after the stock have gone up too much. Secondly, the excessive momentum could be caused by strong belief of the crowd that the price will continue to go in the same direction. Whichever scenario is driving the excessive momentum, it is where we can observe the crowd psychology clearly. Excessive momentum provides the market timing.