Big Movement shows situations when excessively large movement (either up or down) has occurred. It is a statistically rare movement (>2 standard deviations), allowing for mean reversion strategy. These situations are interesting for both trend followers as well as swing traders (mean reversion).
How to trade it?
- For trend followers, it may be a possible sign of a new trend formation.
- For swing traders it is a possible sign that a correction may be coming.
Both approaches could be right. We could see a modest pullback before the trend continues. A swing trader would try to profit from the pullback and then go with the trend. A trend follower would go ahead and place a trade in the direction of the new trend now, or wait for a short term pullback (but not trade it), and then place a trade in the trend direction.
Swing trading these pullbacks in trends can be tricky. Generally, it is best to just trade with a trend, not against it, unless you’re an experienced trader.
Also, it helps if the Big Movement indicates a trend in the same direction of a longer term trend. So if you see a Big Movement up, and the price is also in an uptrend on a longer time interval, then a trader should go long (buy). And vice versa.
Swing traders can confirm a reversal potential (pullback) following a Big Movement with other overbought indicators like RSI to improve their timing and success rates.