Trend and momentum, these two types of market movements are often interchanged. Although both have some similarities, the two also have some differences.
Trend literally means a general direction in which something is developing. In trading, it could be paraphrased as a general direction in which price is moving. This means that for the most part of a trading session, price is moving in a certain direction. Price action traders would often consider a market to be trending if price is constantly making higher highs and lows in the case of an uptrend, or lower highs and lows in the case of a downtrend.
Momentum on the other hand refers to the quantity of motion of a moving body measured as a product of its mass and velocity. In trading, we could interpret it as the strength of a price movement based on its volume (mass) and distance traveled within a few bars (velocity). Different traders identify momentum based on different factors. Some use indicators showing that price is pushing strongly in one direction. Others use candlesticks that have a long body with small wicks indicating that price moved strongly in one direction with high volume.
Both types of setups are used by many traders as a trading strategy. These are called trend-following and momentum strategies. Legacy Trader Forex Trading Strategy combines aspects of momentum and trend using two indicators that could work synergistically.
Commodity Channel Index
Table of Contents
The Commodity Channel Index (CCI) is a technical indicator used by traders to identify trend, momentum and mean reversals in order to anticipate the cyclical movements of price.
The CCI is an oscillating indicator which plots a line which could move to positive or negative. The underlying formula used by this indicator causes price to stay within the range of -100 to 100 at about 70% to 80% of the time. A line that is positive indicates a bullish bias, while a line that is negative indicates a bearish market bias. A line that is constantly staying above zero most of the time indicates a bullish trend, while a line that is constantly negative indicates a bearish trend. A line that is above 100 indicates an overbought price condition, while a line that is below -100 indicates an oversold price condition. On the flip side, a line that is constantly pushing above 100 could indicate a bullish momentum, while a line that is constantly falling below -100 could indicate a bearish momentum.
The Legacy Trader MT4 Indicator
Legacy Trader is a custom indicator which is a trend-following technical indicator.
It simply plots a dotted line on the price chart along with the price candles. The line shifts below price whenever the indicator detects a bullish trend and shifts above price whenever it detects a bearish trend. The color of the line also changes depending on the direction of the trend. An aqua line indicates a bullish trend, while a magenta line indicates a bearish trend.
The line could be used in different ways.
First, it could be used as a trend filter for short-term momentum trading. Traders could use the indicator to avoid taking trades that are against the current trend direction.
It could also be used as trend reversal signal. Traders could use the shifting of the lines and the changing of its color to indicate a trend reversal and use it as entry signal.
Lastly, it could also be used a stop loss placement. Traders could place the stop loss of a trade beyond the line away from price action in order to avoid getting stopped out prematurely.
This strategy takes trades whenever the market is showing signs of strong momentum and trend. It then takes trade entries on shorter-term trend reversals that are inline with the bigger picture momentum and trend.
The CCI indicator is used to identify strong momentum and trend. Using the CCI indicator, bullish momentum will be identified by a line that has recently breached above 100, while bearish momentum will be identified by a line that has recently fallen below -100. However, a breach beyond this range does not instantly qualify for a trend setup. Market trend should also hold. Still based on the CCI indicator, the CCI line should find support or resistance based on the midline which is zero. Price should stay positive indicating a bullish trend or negative indicating a bearish trend.
If trend and momentum is confirmed, we could then start to look for short-term trend reversals that are in line with the bigger picture momentum and trend.
Using the Legacy Trader indicator, we will be taking trades as soon as the line shifts and changes color indicating the direction of the main trend.
- The Legacy Trader MT4 Indicator (default setting)
- CCI Period: 48
Preferred Time Frames: 30-minute, 1-hour and 4-hour charts
Currency Pairs: major and minor pairs plus some crossover pairs
Trading Sessions: Tokyo, London and New York sessions
Buy Trade Setup
- The CCI line should have recently breached above 100.
- The CCI line should stay above zero.
- Enter a buy order as soon as the Legacy Trader indicator shifts below price and changes to aqua.
- Set the stop loss below the Legacy Trader line.
- Close the trade as soon as the Legacy Trader line shifts above price and changes to magenta.
Sell Trade Setup
- The CCI line should have recently fallen below -100.
- The CCI line should stay below zero.
- Enter a sell order as soon as the Legacy Trader indicator shifts above price and changes to magenta.
- Set the stop loss above the Legacy Trader line.
- Close the trade as soon as the Legacy Trader line shifts below price and changes to aqua.
This trading strategy is a trend-following strategy that incorporates elements of momentum based on the long-term.
Price pushing strongly with momentum tends to follow through and continue the prior price push. This often starts a trending market condition which is very conducive for high probability short-term trend trading.
This strategy allows traders to exploit such market condition and profit from the market.
Forex Trading Strategies Installation Instructions
Legacy Trader Forex Trading 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.
Legacy Trader Forex Trading 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 Legacy Trader Forex Trading Strategy?
- Download Legacy Trader Forex Trading Strategy.zip
- *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 Legacy Trader Forex Trading Strategy
- You will see Legacy Trader Forex Trading Strategy 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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