However, if a team has the momentum behind it, the run will many times resume before losing all the gain of the prior run to win the game. If the momentum has shifted to the other team, however, the run will be for naught.

Markets will make similar runs as well. These runs occur in different time frames and in different degrees. Additionally, some of these may exhaust themselves rather quickly, as the momentum within a larger time frame is in opposition to the run. It is therefore important that the trader recognize the pattern of market runs and be prepared to position his/her trade with the run associated with the overall momentum.

If you are trying to pick the very bottom or top of what you think is the end of a major trend, then you are not aligning yourself with the momentum/run of the market but trying to oppose or out-guess it. Statistically, the odds are against you in consistently succeeding at this practice if profits are your target.

However, market runs do form patterns of higher swing bottoms and tops for bullish trends, and lower swing bottoms and tops for bearish trends. Each of these market runs begins at the very bottom or top of a trend of some degree. Therefore, how do you reconcile the importance of not trying to pick the very top or bottom of a trend while at the same time realizing that the best place to enter a trade is at the very bottom or top of a new market run?

The answer to this is rather simple, although the approach does require some understanding and training in market mechanics.

Consider a new bull trend is in the making. When trying to pick the very bottom of a bear trend, you really don't know if the currently formed bottom is going to be THE bottom. Yet, if you allow the bottom to start it's formation with a bullish market run, exhaust itself so that price resumes downward again, yet start another market run PRIOR to moving lower than the low preceeding the prior market run up, you stand a better chance of spotting what may be the end of the bear than trying to pick the very bottom. But it doesn't stop there.

When you start to note that one market run is making a higher swing bottom and top than the prior market run (the initial thrust from the very bottom, for example), you are witnessing the proper pattern for momentum. Making market runs of higher swing bottoms and tops is telling you that the momentum has shifted from one direction to another. Momentum does not change quickly but usually takes time. So it is important that you do not become impatient and look for the pattern that suggests the momentum has changed in the direction you wish to trade.

Now, with momentum suggested to be in one direction over another due to the staircase pattern of swings, you can work to anticipate the very bottom or top of those market runs, whether this be by using trend lines, retracement ratios of prior market runs (ranges), cycle timing or whatever indicator you have found useful for this purpose. If pattern happens to be higher swing bottom and tops (each run ends with a higher top and begins with a higher bottom), you will look to time your entry off each new higher bottom that may begin a new market run using your timing approach until this pattern changes later in the future when momentum once again starts to shift sides.

It is best to be on the side of momentum, and to get in as early as possible for each market run that is on this side of momentum. If momentum does not appear clear and evident when you look at your price charts, it is likely that no side really has momentum and thus a good idea to look at other markets and leave that one alone for now.

TIP: Look at your weekly price chart. Does it appear to cycle smoothly from one direction for a period of bars and then transition to the opposite direction for a period of bars? If so, you should be able to gauge how long each momentum swing tends to last. If the weekly chart is choppy and the trends erratic, avoid that market.

Note: About the Author
Rick J. Ratchford is President of ProfitMax Trading Inc. He is a full-time commodity trader for his own account as well as assisting other traders. He has been a computer programmer for more than 20 years and a trader since 1990.