Cumulation of Momentum (COM) Indicator

Cumulation of Momentum Indicator (COM)

The COM measures the cumulative strength of the trend, and is useful in signalling the end of the trend, and potential breakouts.

 

How to use COM to identify potential breakouts?

Case 1:

1. You need an accumulation range (Period of sideways after a trending market)

accumulation range

 

2. Look for a test of zero line of COM indicator before the breakout

accumulation range

3. Wait for the breakout

Case 2:

accumulation range2

Once again, note the 1. prior trend, 2. accumulation range, 3. test of zero line (COM indicator), before the breakout.

Case 3 (unsuccessful example):

accumulation range3

 If we were to follow the earlier rules mechanically (1. prior trend, accumulation range, 3. test of zero line), then yes, we would end up taking this trend. However, if we looked more carefully, the market provided us with some clues against taking this trade.

1. COM has travelled a very long distance to break above the zero line. Comparing this to Case 1 & 2, it is not exactly the same situation. The COM here feels ‘exhausted’ after such a long distance and probably needs to pullback deeper before a breakout can occur

2. The bars after the test of the COM zero line (the bars leading to the breakout) are small, and do not look powerful enough, compared to case 1 & 2. 

 

Conclusion: Apply this indicator to your chart and play around with it. I’m sure following the images above, you will be able to identify your own potential breakout setups. Personally, I also use COM as an indicator to get a feel for the market direction. Is a potential breakout happening soon? Is the current trend ending soon? (Divergence – more on this below)

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How to use COM to identify the potential end of a trend?

To put it simply, divergence + trend line breaks

In stronger trends, there maybe multiple divergences before the trend reverses. In weaker trends, (such as within a trading range, or a pull back within a larger trend), usually 1 divergence is enough

Example 1:

Weaker trend divergences

Example 2:

Stronger trend example

 

So, there you go, a comprehensive guide to trading using the COM indicator. It is my sincere wish that it benefits you greatly in your trading. Drop me a message or leave a comment below if you have questions!

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