Feature in Focus: Improve your order flow reading with Momentum Tails

Published on: March 11, 2022

In this video we take a look at momentum tails. For many, this tool is the “trainer wheels” for reading momentum, they use it at first and let go of it later. Others like to just keep it on as it is a neat tool and means that reading momentum takes a lot less energy. We’ll explain the feature in terms of how to use it in trading and how to set it up. It’s the first of our “Feature in Focus Videos, where we look at lesser known features in the product and how to use them”. Partly this is because it might not be obvious and partly because the manual doesn’t go into depth on the “why” of the feature.

Notes:

Hi all,

In this video we will start to look at the momentum tails and how it can help you to read order flow, help you with trade management, entry refinement, but also how to keep you out from the market, not allowing you to step in front of it.

Some traders might not need the momentum tails since they can naturally see from where prices are coming from, how prices are moving, but for those who are now starting to learn how to read the DOM, consider the momentum tails, your training wheels. It will allow you to better understand how prices are moving, giving you a visual representation of that move.

And let’s start by showing you the differences between the two. On the right side you have the depth and sales with the momentum tails enabled, and on the left side with the momentum tails disabled.

From the get-go we can see how the momentum tails allow us to visually see where prices are coming from. Comparing with the depth and sales on the left, for the untrained eye, it’s a lot more difficult to read how prices are moving, to read the ebb and flow of those prices, but looking again to the depth and sales on the right, see how the tails can help us delimitate price areas, help us spotting range extremes which we can take advantage of, either by look for a breakout or look for a reverse back into the range when looking for quick scalps.

But let’s now talk about momentum. We consider momentum when the market has a solid move under way that is likely to be sustained, and its tails is… well, let me give you an example:

Let’s look at a boat traveling at high speed. Notice the wake the boat leaves on the water. The faster the speed that boat travels, the bigger that wake will be. So, the tail we see on the D&S from prices picking up speed, is the same as the wake the speed boat leaves on the water.

Now, imagine you are paddling a small boat, and that speed boat passes next to you at high speed. What do you think it will happen to you? Exactly, you will be run over by that big wake.

This is one biggest benefit we get from the momentum tails. When you see prices picking up speed, when you see a big tail, you know that you should not step in front of it because the probability of your being run over is extremely high.

On this example, we’ll look at the charts so we can get some context of what the market has been doing. Momentum right now clearly to the downside. We just made new day lows, we pullback from it. We place a buy order right above the low, looking for a reverse back up, possibly for a quick scalp, our order gets executed, and noticed how we start to chop around 3 to 4 ticks. We are no longer able to generate a bigger pullback, and then we just got run over. See the size of the tail, see how again we are only pullback 3 to 4 ticks and immediately accelerate to the downside again, making new day lows.

Let’s continue with the pullback theme because they can be a good indication of the momentum strength.
In this example we can see momentum build on the downside, we can see the size of the tail we are leaving behind, how weak the pullback is, only 3 to 4 ticks. We place or order at the high of the pullback, we are looking for prices to resume to the downside, our order gets executed, and we do see prices extend above our entry, but they immediately accelerate to the downside again, and notice how this time the pullback is bigger than the previous one. We can see buyers now being a bit more aggressive. In this situation we might see a pause of the downward momentum, where prices might trade in a range for some time and then resume lower or completely reverse and start to create momentum to the upside.

Let’s now look at the options available for the momentum tails. For this you need to go to the depth and sales settings.
Down here you have the option to enable and disable the tails.

On the right side we have the timer which controls the tail fade effect. If you feel 1 second is too fast for you, you can change it to, for example to 3 seconds, and you will notice that the fade effect is now slower which can help you better view where prices are coming from.

For coloring, you need to go to Appearances and look at Current at Bid and Current at Ask. Here you can control the 8 color levels of the tails. If you don’t like the fade effect, you can set all levels to the same color, it’s really up to you how you want to see it.

You have also other color options available.

I hope you’ve liked this first video, leave a thumbs up if you did, subscribe to our channel, and will see you on the next video.