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  Latest
Make Money in Forex by Avoiding These Psychological Risks May 24, 2022
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Momentum Forex Strategy

User by User
October 7, 2020
in Strategies
Reading Time: 3 mins read
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The momentum indicator is classified as an oscillator. It is designed to identify the strength of price movement; it helps traders to assess the extent of price fluctuations for a certain period as well as determine critical conditions that can be used for the position opening. The momentum indicator includes a single curve fluctuating within the borders of the additional window.

Any extreme deviation underlined by the technical tool can be used for the successful position opening. This constitutes a basis for our momentum strategy.

Mathematics of the indicator

The momentum can be literally interpreted as the movement size. It is calculated as a ratio of the current market price to the price which was fixed a certain number of periods ago. The following method of calculation supposes the central line of the oscillator is located at the level of 100. The larger the parameter of the indicator (the period), the more slowly the line fluctuates, the less responding to various price changes it becomes.

Momentum indicator: key trading techniques

The emergence of the extreme values on the chart consisting of 100 and more candles is a signal that current tendency will proceed. Nevertheless, before opening any positions, you need to find confirmation from other indicators.

The following tactics of trading with Momentum indicator is based on signals the trader receives when the line crosses 0 – 100 levels.

To determine the most relevant pivotal moment, it is recommended to construct fast moving average with periods of 5 – 10 candles. The signal for purchase occurs when moving average crosses the level of 100 from below up. The signal for sale occurs when the moving average crosses 100-line from top to down.

The momentum indicator is normally used in case of a breakout of trading channels. If there is a high (positive) momentum and the current price is higher than the previous one and the ascending trend is about to appear than it is a right time to buy. The selling condition would be the following: there should be a low (negative) momentum and the current price must be falling (there should be a bearish trend).

The main drawback of the momentum indicator – an immediate reaction of the indicator at the moment of false breakouts – prices bounces occurring in a result of speculative trades.

To avoid the false signals the momentum indicator might send, you should use other indicators for confirmation.

Forex momentum trend trading system + exponential moving average
“Key ingredients”:

2 moving average – 9-period EMA (red line), 30-period EMA (blue line).

Momentum indicator (14) with 100 line

Timeframe: H1 – for determining the points of entry and holding the position

Demark line connecting lows and highs of price fluctuations

Currency pairs: any pairs in the period of stable volatility (the most effective ones – GBP/USD, EUR/USD, AUD/USD)

BUY signal

The price should break Demark line up;

The momentum line should move above 100 line;

The EMA (9) should cross the EMA (30) from the bottom upwards.

SELL signal:

Breakout of the Demark line down;

Momentum lime should move below the 100 line;

The EMA (9) should cross EMA (30) from up to down.

You should hit the button “open order” at the opening of a new candle. Place stop loss near the local high/low: sell signal – higher than the high you’ve identified; buy signal – lower than the near low. Close the transaction after momentum line crosses 100-line in the opposite direction.

Channel: FBS - Broker | Visit
Foundation: 2009 | Regulation: CySEC, IFSC | Min. Deposit: $5
Tags: FBSH1Moving Average
ⓘ Some contents provide links to third-party news and current events as a convenience to you. We have not reviewed and don't endorse the contents of these sites. Please always do your own research. Mira FX does not endorse any companies, products or services which are represented on this article. Mira FX is not liable for any damage or loss, including but not limited to, any loss of investment, which may be based either directly orindirectly on the use of or reliance on such information. Before deciding whether or not to take part in foreign exchange or financial markets or any other type of financial instrument, please carefully consider your investment objectives, level of experience and risk appetite.

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