If you rely on any type of momentum indicator for identifying trading setups, you’ll want to avoid being fooled by the dropout effect. The dropout effect refers to a misleading momentum output, caused by eliminating the last bar in the lookback period. In other words, the indicator will show a momentum change, although price action clearly tells a different story! To learn more about the dropout effect and how to avoid it, check out this video. DISCLAIMER: Futures, stocks, and spot currency trading have large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures, stocks, commodities and forex markets. Don’t trade with money you can’t afford to lose. This website is neither a solicitation nor an offer to Buy/Sell futures, stocks, commodities or forex. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this website. Past performance of indicators or methodology are not necessarily indicative of future results.
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