15 Price Action Patterns Insiders are Using If a hedge fund managers were using 15 specific price action patterns would you want to know?
Welcome to the world of high-octane trading with our guide on the best momentum trading strategy in 2023! This article is your comprehensive roadmap to mastering the art of momentum trading strategy.
Designed for traders who thrive on the adrenaline of fast-paced markets, our momentum trading system is a finely tuned machine, offering insights into exploiting market trends for maximum profitability.
Before we begin, thanks for visiting Trading Strategy Guides (TSG)! We are so glad you’ve found us. You have discovered the most extensive library of trading content on the internet. Our aim is to provide the best educational content to traders of all stages. In other words, we want to make YOU a consistent and profitable trader.
If you’re a brand new trader, we recommend hopping over to our ultimate beginner’s guide to trading to learn more.
Whether you’re a seasoned trader or just dipping your toes in the dynamic waters of momentum trading, our strategy is tailored to help you harness the power of market movement. So, buckle up and prepare to dive into the exciting realm of momentum trading with us!
Table of Contents
An Introduction to the Best Momentum Trading Strategy
Implementing the best momentum trading strategy can be ideal for building and managing your trading account. Our team atTrading Strategy Guidesbelieves that a momentum indicator strategy can reduce risk and enhance your overall returns. We featured this strategy in our comprehensive guide for thebest trading strategies we have discovered.
Momentum trading is a very hot topic in trading. According to the efficient market hypothesis, it shouldn’t exist. However, its effects are widespread, and many Wall Street elites have used it. They have made billions upon billions of dollars in profits.
We are going to review core market principles. The main one is that momentum precedes price. In this sense, a momentum indicator strategy is more like a trend-following strategy. For a simple yet effective trend-following method, we recommend reviewing the trend-following trading strategy.
Before diving into the best momentum trading strategies, let’s define what momentum indicator trading strategies are.
What Is Momentum?
The term momentum was borrowed from Newton’s first law of motion. Moreover, the law states that an object in motion tends to stay in motion until an external force is applied to it. Like in the law of physics, a market in motion tends to stay in motion rather than reverse. This is the reason why a momentum indicator strategy is so powerful.
So, an instrument that goes up tends to continue going up:
On the other hand, instruments that are going down tend to continue going down:
Trends tend to continue, and we can use momentum to determine when to buy and sell. This is because instruments with positive momentum tend to have positive returns in the near future and vice-versa for those with negative momentum. Because of this, we have found that momentum is typically the best indicator forswing trading.
There are various explanations for why price momentum occurs. Each bias has its own name and psychological explanation behind it. The simplest explanation would be that rising prices attract buyers, and falling prices entice sellers. Our best momentum trading strategy is based on this simple explanation.
Pretty simple, right?
Using a momentum indicator strategy means we will hold the trade for a short time, anywhere between a few minutes and up to a few days. The best momentum trading strategy runs until the momentum dries out. So, we only want to concentrate on the relative strength of any instrument.
Now, before we move forward, we must define what technical indicator we need. This will help us select the best momentumtrading strategyand how to use it.
There are a variety of different momentum indicators. However, the best Forex momentum indicator is the Williams %R indicator. This indicator will help us identify profitable day trading opportunities.
The best Forex momentum indicator is named after legendary trader Larry Williams, who invented it. Larry Williams used this indicator to achieve great success, winning millions of dollars in profits as a result. So, this brings some credibility to the best Forex momentum indicator.
The preferred setting for the best Forex momentum indicator is 40 periods. Furthermore, the Williams %R runs on a scale from -100 to zero.
A reading in the vicinity of -100 indicates that the instrument is oversold. This means it’s a potential buying opportunity. Once it reaches zero, that shows overbought and maybe the time to sell.
Now, let’s see how you can effectively trade with the best Forex momentum trading strategy. Also, feel free to check our guide onhow to use currency strength for trading success.
How to Use the Best Momentum Indicator for Day Trading
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 tip its hands and then react.
One principle of the momentum indicator 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 momentum on our side. Also, feel free to read the hidden secrets of moving average.
Moving forward, we present the buy-side steps of the best momentum trading strategy.
Step #1: Define the Trend. An Uptrend Is Defined by a Series of HH Followed by a Series of HL.
The definition of an uptrend is pretty much standard. In an uptrend, we look for a series of higher highs followed by a series of higher lows. Two HHs followed by at least another two HLs is enough to define an uptrend.
A higher high is simply a swing high point that is higher than the previous swing high. At the same time, a higher low is merely a swing low that is higher than the last swing low.
All momentum traders know that the trend is our friend. However, without momentum behind the trend, we might actually not have any trend. Besides reading the best Forex momentum indicator, we also look at the actual price action for active traders to gauge momentum.
Step #2: In an Uptrend, Look for Bold Candlesticks That Close Near the Higher End of the Candlestick.
A technical analysis concept is that you want to use multiple confirmation signs when buying and selling. This will increase the likelihood that it’s a high-probability trading setup.
In this regard, besides using the best Forex momentum indicator, the momentum trading strategy also incorporates price action.
A practical way to read momentum from a price chart is to simply look at the candlestick length. In an uptrend, we want to see big, bold, bullish candlesticks that close near the higher end of the candlestick.
The figure above shows an ideal representation of what we’re looking for. Big bullish candlesticks precede the upside price movement. This confirms the momentum behind the trend.
Now, it’s time to focus on the Williams %R (the best Forex momentum indicator), which brings us to the next step of our momentum indicator strategy.
Step #3: Wait for the Best Forex Momentum Indicator to Get Oversold (below -80). Then Rallies above the -50 Level Before Buying.
Here, we will use Williams %R intelligently. In an uptrend, we buy after the momentum indicator reaches oversold conditions (below -80) and then rallies above the -50 level.
Now, we have confirmation from both the price and the best Forex momentum indicator. The real momentum is behind this trend, and the probabilities favor more upside prices from here on.
Note:If the momentum indicator continually stays in overbought territory (above the -20 level), it signals a strong momentum and, conversely, a strong trend. Inversely, the same is true in a downtrend.
The next important thing we need to establish is where to place our protective stop loss.
See below…
Step #4: Place Your Protective Stop Loss below the Recent Higher Low.
We want to hide our protective stop loss. It is below the most recent higher low level that formed right before the best momentum trading strategy issued the buy signal.
Alternatively, you can also trail your stop loss below each most recent higher low. This strategy will allow you to lock in the potential profits in case of a sudden market reversal.
Last but not least, the momentum indicator 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: Take Profit Once We Break Below the Previous Higher Low.
A trend in motion can stay in that state longer than anyone can anticipate. 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, it is a break below the most recent higher low.
Alternatively, you can take a profit once the best Forex momentum indicator breaks below the -50 level.
Note:The above was an example of a BUY trade using the best momentum trading strategy. Use the same rules for a SELL trade. In the figure below, you can see an actual SELL trade example.
Take a look:
Final Thoughts about This Momentum Trading System
The best momentum trading strategy leverages the tendency of a market’s price to continue moving in a single direction. This is where the momentum might be upwards or downwards.
In essence, market timing is crucial for a momentum indicator strategy. In this regard, we incorporated the best Forex momentum indicator (Williams %R) in our momentum strategy.
Timing the market can be a daunting task. However, our team at Trading Strategy Guides believes that using pure price action can get you a long way. Also, feel free to check out our price action pin bar trading strategy.
Thank you for reading!
Please leave a comment below if you have any questions about the momentum trading strategy!
Momentum Trading Strategy PDF Download
Dive deeper into the thrilling world of trading with our exclusive momentum trading strategy PDF lesson. This downloadable gem is a treasure trove of insights and practical tips, perfectly crafted to elevate your trading game. Click the link and be transported to a portal where this invaluable resource awaits.
Momentum Trading Strategy Video
Momentum Trading Strategy Info-graphic Download
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15 Price Action Patterns Insiders are Using If a hedge fund managers were using 15 specific price action patterns would you want to know?
