Our team at Trading Strategy Guides believes that smart trading is the way to build the best momentum trading strategy. In this regard, we don’t want to predict when the momentum will happen, but we let the market tips his hands and then react.
One principle of the 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 the momentum on our side.
Step #1: Define the Trend. A Downtrend is defined by a Series of LH Followed by a Series of LL.
The definition of a downtrend is pretty much standard. In a downtrend, we look for a series of lower highs followed by a series of lower lows. Two LH followed by at least another two LL is enough to define a downtrend.
A lower high is simply a swing low point that is lower than the previous swing low. While a lower low is simply a swing low that is lower than the previous swing low.
All momentum traders know that the trend is our friend. But without momentum behind the trend, we might actually not have any trend.
For active traders, we also look at the actual price action in order to gauge momentum. Besides reading the best forex .
Step #2: In a Downtrend - Look for Bold that Close Near the Lower End of the .
A concept is that you want to use multiple confirmation signs when buying and selling. This will increase the likelihood that’s a high probability trading setup.
In this regard, the momentum trading strategy besides using the best Forex also incorporates the price action.
A practical way to read momentum from a price chart is to simply look at the length. What we want to see in a downtrend are big, bold that close near the lower end of the .
The upside price movement is preceded by big . This confirms the momentum behind the trend.
Step #3: Wait for the best Forex to get overbought (below -20). Then rallies below the -50 level before Selling.
We’re going to use , the best forex in a smart way. In a downtrend, we sell after the best forex has reached overbought conditions (below -20). And then rallied back below the -50 level.
Now, we have confirmation from both the price and the best forex . The real momentum is behind this trend and the probabilities are in favor of more downside prices from here on.
Note* If the best forex continually stays in overbought territory (above -20 level), it signals a strong momentum and conversely a strong trend. Inversely the same is true in a downtrend.
Step #4: Place Your Protective Stop Loss above the Recent Lower High.
We want to hide our protective stop loss. It is above the most recent lower high level that formed right before the best momentum trading strategy issue the sell signal.
Alternatively, you can also trail your stop loss above each most recent lower high. This strategy will allow you to lock-in the potential profits in case of a sudden market reversal.
Last but not least the strategy also needs a place where we need to take profits, which brings us to the last step of the best momentum trading strategy.
Step #5: You find your own Take Profit or Take Profit once we break below the Previous Lower High.
A trend in motion can stay in that state longer than anyone can anticipate. And since we want to maximize our potential profits we let the market tip its hands before liquidating our trades. In this regard, we look for a break in the trend structure. Respectively a break above the most recent lower high.
Alternatively, you can take profit once the best forex breaks above the -50 level.
Note** The above was an example of a SELL trade using the Best Momentum Trading Strategy. Use the same rules for a BUY trade.