Trading Momentum

How do you actually do it?

I did a couple of tests on the GBP/USD to see what happens if we enter in the direction of the momentum when the market closes x number of pips above or below the previous day's high or low. It seems to produce an edge on the Cable, but not so with many other pairs or indices.

So what are your actual methods for trading momentum? Or are 'trade price not indicators' and 'trade momentum' just another couple of meaningless terms?

Davidee said:

Well it doesn't look like anyone's interest? Here's the momentum trading results anyway. Basically the further above or below the previous day's high or low the market closes the greater the 'edge'. But this only seems to work well on the cable. Awful on some pairs and so bad on indices that doing the exact opposite appears to be a system for the S&P500.

Click to expand...

I'd suggest the looking at the following. I won't put it on a plate, that's reserved for my finest, tastiest morsels and maybe a few peas and some sauce. This should be enough to give you an a'ha me hearties moment:

Step 1 & 2, find the level and look for momentum on some higher timeframe, where the momentum came from is your level. This momentum needs to be compared to prior momentum: just because you see a big bar (or combination of bars) does not necc indicate what you are seeking. Not all momentum is 'the same'. You get momentum both at the beginning and at the end of moves.
Step 3 Draw a line
Step 4 Price will do one of two things, it will either carry on past the most recent close regardless, or it will retrace to the initial source of the momentum, it may retrace immediately (within the day) or it may occur over a number of days
Step 4 Time to go fishing. On some smaller timeframe send out a sprat to catch a mackeral. No deep sea trawling please.


Captain Joe

Davidee said:

How do you actually do it?

I did a couple of tests on the GBP/USD to see what happens if we enter in the direction of the momentum when the market closes x number of pips above or below the previous day's high or low. It seems to produce an edge on the Cable, but not so with many other pairs or indices.

So what are your actual methods for trading momentum? Or are 'trade price not indicators' and 'trade momentum' just another couple of meaningless terms?

Click to expand...

Im on the trade price camp. When everybody has the same indicators, which they do, its just not as reliable as it used to be say 15yrs ago when only the pros had fancy software.

Now you get all the stuff for free with any broker.

Davidee said:

Well it doesn't look like anyone's interest? Here's the momentum trading results anyway. Basically the further above or below the previous day's high or low the market closes the greater the 'edge'. But this only seems to work well on the cable. Awful on some pairs and so bad on indices that doing the exact opposite appears to be a system for the S&P500.

Click to expand...

What's the drawdown on the system? I think my mate uses a similar system in one of his models.

Jackn8 said:

Im on the trade price camp. When everybody has the same indicators, which they do, its just not as reliable as it used to be say 15yrs ago when only the pros had fancy software.

Now you get all the stuff for free with any broker.

Click to expand...

Some traders are now designing their own fancy software, they'll design and build it themselves or pay for it to be done. They want an edge over everyone else who has the standard indicators which as you say are not as reliable as they were 15 years ago.

They take their ideas honed over years of experience and design their own things. They dont use the standard ideas that everyone else uses. Thats one way they get an edge.

Lots of moves now days on FX are due to algorithms. It makes the old way of doing things redundant. Traders that trade momentum every day pick up on the new way things are working and quickly adjust to the new game. If they need any new software or indicators to help them they'll sort it out themselves. There is no way they will use what everyone else does, they need an edge over everyone else they certainly don't want to join them.

That's my take. I'm sure there are many that will dis agree, but that's what makes a market, different opinions.