Best Momentum Trading Strategy
Implementing the best momentum trading strategy can be an ideal way to build and manage your trading account. Our team at Trading Strategy Guide believes that momentum indicator strategies can reduce risk. It can also increase your overall returns. We feature these strategies in our comprehensive guide to the best trading strategies we can find.
Momentum trading is a very hot topic in trading. According to the efficient market hypothesis, it should not exist. But its effects are widespread and it has been used by many of Wall Street’s elite. They have made billions of billions of dollars in profits.
We will review core market principles. The main thing is that this momentum leads the price. In this sense, the momentum indicator strategy is more similar to the trend following strategy. For the following simple yet effective method, we recommend studying the following Dependent Trading Strategy.
Before diving into the best momentum trading strategies, let’s define what an indicator momentum trading strategy is:
What is Momentum?
The term momentum is borrowed from Newton’s first law of motion. The law states that if an object is in motion it tends to move until an external force is applied to it. As in the laws of physics, moving markets tend to move rather than reverse. This is the reason why the momentum indicator strategy is so powerful.
Also, read about Fading momentum in Forex Trading.
Therefore, rising instruments tend to continue to rise:
Basically trends tend to continue and we can use momentum to determine when to buy and when to sell. This is because instruments with positive momentum tend to have positive returns in the near future. And vice versa for those who have negative momentum. This is why we find that momentum is usually the best indicator for swing trading.
There are various explanations for why price momentum occurs. Each tendency has its own name and psychological explanation behind it.
The simplest explanation is that rising prices attract buyers and falling prices attract sellers. Our best momentum trading strategy is based on this brief explanation.
Easy enough, right?
By using the momentum indicator strategy, this means that we will hold the trade for a short period of time. Anywhere between a few minutes and up to a few days. Basically, the best momentum trading strategy runs until momentum weakens.
Therefore, we only want to focus on the relative strength of any instrument.
Now ….
Before we move forward, we must determine what technical indicators we need. This will help us choose the best momentum trading strategy and how to use it:
There are many different momentum indicators. But the best forex momentum indicator is the Williams %R indicator. The best forex momentum indicator will help us identify profitable day trading opportunities.
The best forex momentum indicator is named after the legendary trader Larry Williams who created it. Larry Williams uses the best forex momentum indicators to succeed. He won millions of dollars in profits.
So, this brings credibility to the best forex momentum indicator.
The preferred setting for the best forex momentum indicator is 40 periods.
Williams %R runs on a scale from -100 to zero. A reading around -100 is an indication that the instrument is oversold. This means it is a potential buying opportunity. Once it reaches zero, that’s an indication of a buy price and maybe time to sell.
Now, let’s see how you can trade effectively with the best momentum trading strategies. You will learn how to make profit from using the best forex momentum indicator. We also have training on how to use currency strength for successful trading.
The Best Momentum Trading Strategies using the Best Forex Momentum Indicators
Our team at Trading Strategy Guide believes that smart trading is the way to build the best momentum trading strategy. In this case, we don’t want to predict when the momentum will happen, but we let the market tip its hands and then react.
One principle of the momentum indicator strategy is, “buy high to go higher” and “sell low to go lower.” In other words, we trade in the direction of the trend while having momentum on our side. Also read the hidden secrets of moving averages.
Moving forward, we present the buy-side rules of the best momentum trading strategies.
Step #1: Determine the Trend. Uptrend is defined by HH Series Followed by HL Series.
The definition of uptrend is pretty standard. In an uptrend, we look for a series of higher highs followed by several higher series. Two HHs followed by at least two more HLs are enough to define an uptrend.
A swing high is simply a swing high point that is higher than the previous swing level. While a higher low is simply a swing low that is higher than the previous swing low.
All momentum traders know that the trend is our friend. But without momentum behind a trend, we might as well not have a trend at all.
For active traders, we also look at actual price action to gauge momentum. In addition to reading the best forex momentum indicators.
Step #2: In the Uptrend Look for Bold Candlesticks Near the High End of the Candlestick.
The concept of technical analysis is that you want to use some confirmation signals when buying and selling. This will increase the likelihood of that high probability trade setup.
In this regard, momentum trading strategies in addition to using the best Forex momentum indicators, also incorporate price action.
A practical way to read momentum from a price chart is to look at the length of the candlestick. What we want to see in an uptrend is a large, thick bullish candle close near the end of the higher candle.
In the picture above, we have an ideal idea of what we are looking for. Upward price movements are preceded by large bullish candlesticks. This confirms the momentum behind this trend.
Now, it’s time to focus on Williams %R. This is the best forex momentum indicator. Which brings us to the next step of our momentum indicator strategy.
Step #3: Wait for the best Forex Momentum Indicator to get oversold (below -80). Then rally above -50 before Buy.
We will use Williams %R, the best forex momentum indicator in a smart way. In an uptrend, we buy after the best forex momentum indicator has reached an oversold condition (below -80). And then reunited above the -50 level.
Now, we have confirmation from both price and the best forex momentum indicators. Real momentum is behind this trend and the probability favors higher prices from here.
Note * If the best forex momentum indicator continues to be in overbought territory (levels above -20), it indicates strong momentum and otherwise a strong trend. The opposite is true in a downtrend.
The next important thing we need to determine is to place our protective stop.
See below…
Step #4: Place your Stop Protection under Current Low Low.
We want to hide our protective stop loss. It is below the most recent low that was formed before the best momentum trading strategy issued a buy signal.
Alternatively, you can also set your trailing stop below each recent low. This strategy will allow you to lock in potential profits in the event of a sudden market reversal.
The last but not least momentum indicator strategy also requires where we need to take profit, which brings us to the last step of the best momentum trading strategy.
Step #5: Take Profits as soon as we break below the Previous High Low
Trends in motion can stay in place longer than anyone might expect. And because we want to maximize our profit potential, we let the market tips handle it before liquidating our trade. In this case, we look for a break in the trend structure. Emphasize a break below the most recent low.
Alternatively, you can take profit once when the best forex momentum indicator breaks below the -50 level.
Note ** The above is an example of a BUY trade using the Best Momentum Trading Strategy. Use the same rules for SELL trades. In the picture below, you can see an example of a real SELL trade.
Summary
The best momentum trading strategies take advantage of the tendency of market prices to continue moving in one direction. This is where momentum may be up or down. Basically, market timing is important for momentum indicator strategies. And in this regard, we include the best Forex momentum indicator (Williams%R) in our momentum strategy. Here are some trading terms you want to avoid in the forex market.
Timing the market can be a daunting task. But our team at Trading Strategy Guide believes that using pure price action can get you far. Check out our Price Lending Bar Action Trading Strategy.
Thank you for reading!