Sign In with Google
Sign In with Facebook
Momentum Trading is an effective strategy that trades in the direction of the trend. Its calculation method is based on the use of four Forex indicators: two moving averages, which, when crossed, will determine the market trend, and two oscillators that find the optimal trading entry points.
The strategy can be applied to any currency pairs, however, to achieve better results, it is recommended to use trending pairs. Any timeframe can also be selected, but not higher than H1.
Strategy indicators
The Momentum Trading strategy is based on four indicators, given that each of them is effective, it can be assumed that together they form an equally effective strategy.
- -SMA(21) - slow simple moving average with a set period of 21.
- -SMA(11) - fast moving average with a period equal to 11.
- -RSI-relative strength indicator, also indicating overbought and oversold conditions. The parameters of the indicator remain unchanged.
- -Momentum - indicator of the rate of price change, with a set period of 30. Among other things, in the indicator settings, add a level with a value of 100.
Trading with Effective Momentum the strategy
When making trades using the Momentum Trading strategy, it is should be very careful and take into account the readings of each indicator that is part of the strategy, namely, it is worth considering the intersection of simple moving lines, the intersection of the RSI indicator line at levels 20 and 80, and the breaking of level 100 by the Momentum indicator.
Conditions for Buy trades:
- The fast moving average crosses the slow moving average from the bottom up and is above it, this indicates the presence of an uptrend in the market.
- -The RSI indicator line breaks through the level 20 and moves upwards without crossing the level 80.
- -The Momentum indicator moves up and crosses its 100 level.
Stop loss should be set at 30 points and take profit at 60 points.
A long position should be closed if:
- - Moving averages change their position, forming a downtrend in the market.
- -The RSI indicator line is heading upwards, however, it crosses the overbought zone, that is, the level of 80. Or changes direction and moves down.
- - The Momentum indicator also moves up, but does not break through the 100 level.
Conditions for Sell trades:
- - Moving average with a longer period crosses the moving average with a smaller period from top to bottom. This means that the market is in a downtrend.
- -The RSI indicator is pointing down, breaking through the level 80, but does not reach the level 20.
- -The Momentum line goes from top to bottom, crossing level 100.
The stop loss order should be set at 30 points, and the take profit should be twice as much.
A sell trade should be closed if:
- - An uptrend has been determined on the market, that is, the moving average with a period of 21 is under the moving average with a period of 11.
- -The RSI indicator is heading down, crossing the oversold zone, that is, level 20. Or changing direction and moving up.
- -The Momentum indicator line is moving down without crossing the 100 level.
Conclusion
Momentum Trading is often used in trading to make fast and efficient trades. The strategy can be used not only by experienced traders, but also by beginners, since its use is not difficult. However, to be sure of this, it is recommended to use a demo account before trading on a real deposit. And already during trading, it should be conducted the correct control of money management.
