Momentum Trading Strategies are some of the most popular types of trading strategies. This is because with the right strategy and a well-developed skill set in trading, momentum trading strategies do work well.
If you would have to predict what would happen to you in the future, which one would be easier, predicting what would happen in the next few minutes or what would happen in the next few weeks? You might be able to accurately predict the next few minutes. You might say you would still be in front of your computer reading, but you might not be able to guess with certainty what you would be doing at around the same time next week. The same is true with momentum trading.
In momentum trading, traders could easily predict the next few candles because of certain clues that is happening in the current candle. Momentum trading works best when it is aligned with a bigger picture trend but is traded based on short-term momentum signals. It is about identifying short-term bursts in price going in one direction and trading according to that momentum signal.
Half Trend Momentum Forex Trading Strategy is an example of a momentum strategy based on such conditions. It trades based on momentum candles but are aligned with the trend based on a couple of complementary short-term and mid-term trend indicators.
Half Trend 1.02
The Half Trend indicator is a momentum indicator which helps traders identify trend direction and trend reversals.
It indicates trend direction by displaying a spiked line overlaid on the price chart. During an uptrend the line displayed is a dodger blue line with downward facing spikes. The line is then displayed below the price candles. In a downtrend, the line becomes red and the spikes are shifted up. The line is also repositioned above the price candles.
The indicator also points out trend reversals by placing arrows on the candle where it detects a trend reversal. In a bullish trend reversal, the indicator displays a dodger blue arrow pointing up, while a bearish trend reversal, the indicator displays a red arrow pointing down.
Heiken Ashi SWAlert
The Heiken Ashi SWAlert indicator is derived from the Heiken Ashi Candles indicator.
The Heiken Ashi Candles indicator is a momentum indicator which helps traders identify the short-term trend direction as well as its reversals.
The regular Heiken Ashi Candles indicator is overlaid on the price chart as candlesticks that change color depending on the direction of the short-term trend.
The Heiken Ashi SWAlert indicator on the other hand, instead of overlaying bars on the price chart, displays its indications as bars on a separate window. The bars change color depending on the direction of the trend.
In this setup, white bars indicate a bullish short-term trend, while red bars indicate a bearish short-term trend.
Trading Strategy
This trading strategy is a simple momentum strategy which takes trades based on momentum candles. However, instead of taking all trades with a momentum candle, the strategy filters for the short-term trend direction using the Half Trend indicator and the Heiken Ashi SWAlert indicator.
We will be using the Heiken Ashi SWAlert indicator to identify the main trend direction. Trend direction will be based on the color of the bars being printed.
Then, trade signals should be based on a confluence of a momentum candle and the Half Trend reversal signal.
The Half Trend indicator should print an arrow pointing the direction of the short-term momentum reversal which in aligned with the trend direction of the Heiken Ashi SWAlert bars. The corresponding candle should also be a momentum candle with a big long body and small wicks.
Indicators:
- Heiken Ashi_SWAlert (default setting)
- HalfTrend-1.02 (default setting)
Preferrend Time Frames: 1-hour and 4-hour charts
Currency Pairs: major and minor pairs
Trading Session: Tokyo, London and New York sessions
Buy Trade Setup
Entry
- Price should be above the Half Trend indicator.
- The Heiken Ashi SWAlert indicator should be printing white bars.
- The Half Trend indicator should change to dodger blue and should print an arrow pointing up.
- The corresponding candle should be a bullish momentum candle.
- Enter a buy order on the confirmation of the conditions above.
Stop Loss
- Set the stop loss a few pips below the entry candle.
Exit
- Close the trade as soon as the Heiken Ashi SWAlert bars change to red.
Sell Trade Setup
Entry
- Price should be below the Half Trend indicator.
- The Heiken Ashi SWAlert indicator should be printing red bars.
- The Half Trend indicator should change to red and should print an arrow pointing down.
- The corresponding candle should be a bearish momentum candle.
- Enter a sell order on the confirmation of the conditions above.
Stop Loss
- Set the stop loss a few pips above the entry candle.
Exit
- Close the trade as soon as the Heiken Ashi SWAlert bars change to dodger blue.
Conclusion
This strategy is an improved version of an already working basic strategy, which is the usual momentum trading strategy.
When I first started out trading, I traded solely based on momentum candles. Not all trades are profitable but in the long-run, you should see positive results. Trades would usually be profitable as long as price does not hit a support or resistance barrier.
This strategy works exactly the same. The only difference is that we are filtering based on the short-term trend direction. This significantly increases the probability of a win compared to the usual momentum strategy pointed out earlier.
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