Determine the Trend’s Strength when Trading with the Five-Energy Methodology
After determining the direction you want to trade, you then look at the momentum indicator to see whether momentum (strength) is behind the trend. The trend, as shown by the 50 SMA, tells you only the direction of the market at this snapshot in time. It doesn’t tell you whether the trend is strong or weak.
If you execute a trade in the direction of a weak trend, that trend will likely end right after you enter.
The energy of momentum helps determine whether the trend is strong or weak, and you want to trade only in the direction of a strong trend.
The figure illustrates how to determine whether a trend is strong. When entering a cycle low on an uptrend, make sure that the momentum indicator (the MACD line) is above the 0 line at the cycle low. When you see that on your chart, you can consider that a strong trend, which will likely follow through and make a higher high after you enter.