Momentum trading is a very rewarding type of trading strategy. Momentum trade setups usually have high accuracy compared to other trade setups and has the potential to have a good reward risk ratio. This combination of a good reward-risk ratio and win rate is the key ingredient to having a profitable trading strategy.
However, there are also many momentum traders who end up diminishing the strengths of momentum strategies due to a lower win rate. This is because momentum strategies are double edged swords. Momentum strategies could result in price pushing further in the direction of the momentum setup, but if traded against a strong support or resistance, price could bounce off quite strongly and reverse. Imagine a ball being thrown at full strength. If it hits something smaller or something that could easily be broken through, chances are the ball would break through it. If it hits a hard wall, it bounces off quite strongly. Momentum traders should also consider this when trading. They should not trade against a strong support or resistance.
One way to decrease the likelihood of price bouncing off after a momentum signal is by trading with the trend. This is because when a market is trending, price would usually break through a support or resistance unless the momentum of the trend is slowing down.
Buy Sell Filter Momentum Forex Trading Strategy is a momentum trading strategy that considers trend direction and trend strength. It makes use of technical indicators which can assist trader in identifying prime conditions for a high probability momentum setup.
Buy Sell Arrow Scalper
Buy Sell Arrow Scalper is a trend following technical indicator intended to make it easier for traders to identify trend direction and trend reversals.
This indicator is a simple indicator which plots a line with teeth. The color of the line and the location of the teeth changes depending on the direction of the trend which the indicator detects.
If the trend has a bullish bias, the indicator plots a dodger blue line with teeth below the line. If the trend becomes bullish, the line changes to red and the teeth shifts above the line.
It also plots arrows pointing the direction of the trend whenever it detects a trend reversal.
The Buy Sell Arrow Scalper was developed to help traders scalp the forex markets. However, it could also be used on different time frames with different trade durations.
It can be uses as a trend direction filter by taking trades that are in confluence with the direction of the Buy Sell Arrow Scalper.
It can also be used as a trend reversal signal. Traders can simply use the arrows, the shifting of the teeth of the line, and the changing of the color of the line as a trend reversal signal where they could enter a trend reversal setup.
The classic Relative Strength Index (RSI) is a versatile indicator which could be used in a variety of ways. It provides information regarding trend direction, mean reversals and momentum using only one oscillator.
The original RSI is plotted as a line that oscillates within the range of 0 to 100. It also often has markers on 30, 50 and 70.
Level 50 is often used to identify the general trend bias. If the RSI line is above 50, then the market has a bullish bias, while if the RSI line is below 50, then the market has a bearish trend bias. Many traders also add 45 and 55 as support and resistance levels.
The levels 30 and 70 are both used to identify overextend market prices. If the RSI line is below 30, then the market is oversold. If the RSI line is above 70, then the market is overbought.
However, momentum traders look at it differently. If the RSI line drops below 30, then the market could be gaining bearish momentum, while if the RSI line breaches 70, then the market could be gaining bullish momentum.
The RSI Filter is a momentum indicator based on the momentum concept of the RSI indicator and the 45 and 55 support and resistance levels. It plots positive bars indicating a bullish momentum if the RSI line breaches above 70 and continues plotting positive bars until the RSI line drops below 45. It also plots negative bars indicating a bearish momentum if the RSI line drops below 30 and continues plotting negative bars until the RSI line breaches above 55.
This trading strategy is a simple momentum trading strategy which produces trade signals that are in line with the general trend bias.
To identify the trend direction, we will be using the 50-period Exponential Moving Average (EMA). The trend will simply be based on the location of price action in relation to the 50 EMA line and the slope of the 50 EMA line.
The shorter-term trend will be based on the Buy Sell Arrow Scalper indicator. Trend direction will be based on the color of the Buy Sell Arrow Scalper line and the last plotted arrow direction.
Momentum and trend are then confirmed based on the RSI Filter indicator. This will simply be based on whether the indicator is plotting positive or negative bars.
As soon as trend is confirmed, we will then wait for a momentum candle to be formed. Trades are taken as soon as a momentum candle is formed in the direction of the trend.
- 50 EMA
Preferred Time Frames: 30-minute, 1-hour, 4-hour and daily charts
Currency Pairs: FX majors, minors and crosses
Trading Sessions: Tokyo, London and New York sessions
Buy Trade Setup
- Price action should be above the 50 EMA line.
- The 50 EMA line should be sloping up.
- The Buy Sell Arrow Scalper line should be dodger blue.
- The Buy Sell Arrow Scalper indicator should plot an arrow pointing up.
- The RSI Filter should be plotting positive bars.
- A bullish momentum candle should be formed.
- Enter a buy order upon confirmation of these conditions.
- Set the stop loss below the entry candle.
- Set the take profit target at 2x the risk on the stop loss.
Sell Trade Setup
- Price action should be below the 50 EMA line.
- The 50 EMA line should be sloping down.
- The Buy Sell Arrow Scalper line should be red.
- The Buy Sell Arrow Scalper indicator should plot an arrow pointing down.
- The RSI Filter should be plotting negative bars.
- A bearish momentum candle should be formed.
- Enter a sell order upon confirmation of these conditions.
- Set the stop loss above the entry candle.
- Set the take profit target at 2x the risk on the stop loss.
Momentum trade setups are generally high probability trade setups. There are even traders who set their whole strategy around taking trades on momentum candles and are very successful traders.
However, momentum trading could also run the risk of bouncing off supports and resistances. This trading strategy is aimed at increasing the probability of a momentum trade setup by taking only trades that are aligned with the trend and momentum.
If paired with a market flow or price action type of strategy, this trade entry strategy could produce excellent results that could make traders consistently profitable.
Forex Trading Strategies Installation Instructions
This strategy is a combination of Metatrader 4 (MT4) indicator(s) and template.
The essence of this forex strategy is to transform the accumulated history data and trading signals.
This strategy provides an opportunity to detect various peculiarities and patterns in price dynamics which are invisible to the naked eye.
Based on this information, traders can assume further price movement and adjust this strategy accordingly.
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How to install this Forex Strategy?
- Download the zip file
- *Copy mq4 and ex4 files to your Metatrader Directory / experts / indicators /
- Copy tpl file (Template) to your Metatrader Directory / templates /
- Start or restart your Metatrader Client
- Select Chart and Timeframe where you want to test your forex strategy
- Right click on your trading chart and hover on “Template”
- Move right to select this strategy
- You will see the strategy setup is available on your Chart
*Note: Not all forex strategies come with mq4/ex4 files. Some templates are already integrated with the MT4 Indicators from the MetaTrader Platform.
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