Momentum trading is one of the easiest and most profitable ways of making money trading Forex. Here is a simple momentum trading strategy anyone can start using today in the Forex markets.
Here is a simple yet profitable momentum trading strategy in 7 points:
- Trade with the trend. Unless you are George Soros and can move the markets go with the trend and the money will follow (this is why the strategy is called “momentum trading”, it trades with the momentum in the market)
- The short term and medium term moving averages must be diverging, or fanning. If the moving averages are getting further away from each other that means the trend is taking momentum
- The price must be near two buy / sell zones in two different timeframes. Just plot the same chart on different periods next to each other and make sure the price is close to the buy / sell zone in both
- You need a small candle in the direction of entry to confirm the direction. That is to say, if you are expecting an uptrend make sure you wait for a small bullish candle. In the case of a downtrend, wait for a bearish candle.
- Trigger – if you have all of the above, as the candle breaks a previous high (or low) enter the trade
- Stop loss – set the stop loss at the opposite end of the small candle. The logic in doing that in this momentum trading strategy is that if the price then makes a lower low, that’s exactly the definition of a downtrend. And you don’t want to be getting long in a downtrend
- Target profits – to make sure you benefit the most of the trading momentum, set the first profit target at a 1:1 reward to risk ratio. Set the second target at a 2:1 ratio and let the third one run until you are stopped out (you will adjust the stop loss accordingly).
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