Popular Momentum or the speed indicator enables to measure the price fluctuations of financial asset for a certain period. Any strong deviation which is easily distinguished by using this tool can be considered as a critical market condition which can be used for successful position opening.
It serves as a basis for the Momentum Forex strategy. The indicator is traditionally located at an additional window and is not a mere oscillator. It should be noted that there are two approaches as to the calculation of a momentum.
The movement is evaluated in absolute measures, so that points, cents, dollars are used for the analysis of financial asset price dynamics. Therefore, Forex Momentum indicator has been originally calculated as a difference between the current market price and the price which was a number of periods back. When using such method of calculation, the central line will be located at zero level.
Such Momentum has been built in all exchange terminals. The indicator which is used in the majority of popular trading terminals, including MetaTrader4 5 , mathematically represents the ratio of the present price to the price which has been fixed a number of periods back.
It shows a ratio of the current price to the price a number of periods back. Therefore, the central line of this oscillator is always located at the level of Such difference in the methods of calculation is not crucial for Momentum trading Forex as the marking under both formulas is almost identical.
Usually smoothing, averaging and other transformations are not applied to results. Both methods most often use Close prices as the most precise indicators for the future movement forecast. The larger the indicator parameter, the more slowly its line reacts to the changes in price.
However, more precise assessment requires analysis of its behavior in relation to central level 0 or Such simple tactics is justified only on long intervals, for example, consisting of and more candles. Emergence of extreme values says that the current tendency growth or fall will proceed. Nevertheless, such Momentum Forex strategy recommends opening transactions only after confirmation from additional indicators. Such technique can already be effective on shorter periods.
Sometimes for more exact determination of the pivotal moment it is recommended to construct fast moving average with the periods of no more than candles on the Momentum line. Then a signal on purchase is a breakthrough of the line of own moving average from below up, and a signal for sale from top to down.
Work of Momentum as the advancing oscillator is based on assumption that a swing will be followed by a stage of prompt movement of the prices, and it is possible to catch a profit so far a great number of new participants join in a new trend. When the market approaches a swing point, then there often take place divergence situations with the price chart on the Momentum line which is rather strong trading signal.
The Momentum indicator is successfully used as the oscillator in case of breakthrough of the channel. In other words, if there is a the high positive Momentum during a flet, the current price is higher than the previous one and the ascending trend is more probable, than it is good time to buy.
In contrast, if there is a low negative Momentum and the price falls a bear trend , the best option is to sell. A sharp reaction of the indicator at the moments of speculative price bounces that makes its signals absolutely incorrect is a shortcoming of Forex Momentum trading.
Therefore, this tool can only be used in the complex strategies with various types of indicators. H1 - for the search of point of entry and holding the position.
Decision making requires availability of Demark line connecting 3 minimum or 3 maximum fluctuations. So, for a signal for purchase the following requirements must be satisfied: For a signal for sale the opposite conditions are necessary: We enter the transaction at opening of a new candle. Crossing of moving averages after breakdown of Demark trend line is allowed.
We put Stop Loss on behind a local extremum: We will close the transaction right after the Momentum line crosses level in the opposite direction. EMA 19 moving average on closing prices and Momentum 18 with level Alexander Elder always preferred trade in the direction of strong movement therefore we will use only trend characteristics of the Momentum indicator.
The first signal which shall draw attention of the trader is the crossing level by the Momentum 18 line. The Momentum 18 line at the same time shall move higher than the level Following Momentum strategy Forex it is necessary to close an hour candle below the moving average and to move the Momentum 18 line lower than the level As a rule Momentum Forex system signals appear consistently in such system.
Availability of both signals is obligatory. The minimum TakeProfit is 2,5 times more than StopLoss. Forex Momentum trading Stable strategies using the indicator can be constructed only provided that Momentum signals are used as additional. On the small periods and during unstable volatility its signals in general cannot be trusted to as its line is redrawn and the previous signals are cancelled. This pulse indicator is the excellent sensor of the market force, but it is necessary to use it carefully.
In spite of the fact that there is only one parameter, it is recommended to select it carefully for the current volatility of an asset and it is obligatory to test it on historical quotations in Momentum Forex trading.More...