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Top 5 Forex Trading Strategies For Profitable Trading In Colombia – Some forex traders are extremely patient and love to wait for the perfect setup, while others need to see a move happen quickly or they will exit their positions. These impatient souls are perfect momentum traders because they wait for the market to have enough strength to push a coin in the desired direction and they take advantage of the momentum in hopes of an extension move.
However, once the move shows signs of running out of steam, an impatient momentum trader will also be the first to jump ship. Therefore, a true momentum strategy needs to have strong exit rules to protect profits while also being able to take advantage of as much of the extension move as possible. The Momo 5 Minute Strategy does just that.
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The five-minute momo looks for a momentum or “momo” burst on very short-term (five-minute) charts. First, traders rely on two technical indicators that are available in many charting software packages and platforms: the 20-period Exponential Moving Average (EMA) and the Moving Average Convergence Divergence (MACD). The EMA is chosen over the Simple Moving Average because it gives more weight to recent moves, which is necessary for fast momentum trades.
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While a moving average is used to help determine the trend, the MACD histogram, which helps us measure momentum, is used as a second indicator. The MACD histogram settings are the default values used on most charting platforms: EMA=12, second EMA=26, signal line EMA=9, all using closing prices.
This strategy waits for a reversal trade, but only takes advantage of the setup when momentum supports the reversal enough to create a larger breakout. He exits the position in two separate segments; the first half helps us lock in profits and ensures that we will never turn a winner into a loser and the second half allows us to try to capture what could become a very big move without risk because the stop has already been moved to breakeven . Is that how it works:
Our first example above is EUR/USD on March 16, 2006, when we see the price move above the 20-period EMA as the MACD histogram crosses above the zero line. Although there were a few instances where the price tried to move above the 20 EMA between 1:30 p.m. and 2:00 p.m. ET, a trade was not triggered at that time because the MACD histogram was below the zero line.
We waited for the MACD histogram to cross the zero line, and when it did, the trade was triggered at 1.2044. We enter at 1.2046 + 10 pips = 1.2056 with a stop at 1.2046 – 20 pips = 1.2026. Our first target was 1.2056 + 30 pips = 1.2084. It was activated approximately two and a half hours later. We exit half of the position and trail the remaining half by the 20 period EMA minus 15 pips. The second half finally closes at 1.2157 at 21:35 p.m. ET for a total profit on the trade of 65.5 pips.
Exponential Moving Average
The next example (above) is USD/JPY on March 21, 2006, when we see the price move above the 20-period EMA. Like the EUR/USD example above, there were also a few cases where the price crossed above the 20-EMA just before our entry point, but we didn’t take the trade because the MACD histogram was below the EMA. zero line.
The MACD turned first, so we waited for the price to cross the EMA 10 pips and when it did, we entered the trade at 116.67 (the EMA was at 116.57).
The math is a bit more complicated in this case. The stop is at the 20-EMA minus 20 pips or 116.57 – 20 pips = 116.37. The first target is the entry plus the amount risked, or 116.67 + (116.67- 116.37) = 116.97. It activates five minutes later. We exit half of the position and trail the remaining half by the 20 period EMA minus 15 pips. The second half finally closes at 117.07 at 18:00. ET for a total average profit on the trade of 35 pips. Although the profit was not as attractive as on the first trade, the chart shows a clean and smooth move indicating that the price action played well within our rules.
In short terms, our first example is the NZD/USD on March 20, 2006 (shown below). We see the price cross below the 20-period EMA, but the MACD histogram is still positive, so we wait for it to cross below the zero line 25 minutes later. So our trade is activated at 0.6294. As in the previous USD/JPY example, the math is a bit confusing in this case because the moving average crossover did not occur at the same time as when the MACD moved below the zero line as it did in our first EUR/USD example. As a result, we enter 0.6294.
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Our stop is the EMA 20 plus 20 pips. At that time, the 20 EMA was at 0.6301, which puts our entry at 0.6291 and our stop at 0.6301 + 20 pips = 0.6321. Our first target is the entry price minus the amount risked or 0.6291 – (0.6321- 0.6291) = 0.6261. The target is reached two hours later and the stoppage of the second half is moved to break even. We then proceed to trail the second half of the position by the 20 period EMA plus 15 pips. Then the second half closes at 0.6262, for a total profit on the trade of 29.5 pips.
The example above is based on an opportunity that developed on March 10, 2006 in GBP/USD. On the chart below, the price crosses below the 20 EMA and we wait 10 minutes for the MACD histogram to move into negative territory, triggering our entry order at 1.7375. Based on the rules above, as soon as the trade is triggered, we place our stop at the 20 plus 20 pips EMA or 1.7385 + 20 = 1.7405. Our first target is the entry price minus the amount risked, or 1.7375 – (1.7405 – 1.7375) = 1.7345. It activates shortly after.
We then proceed to trail the second half of the position by the 20 period EMA plus 15 pips. The second half of the position is finally closed at 1.7268, for a total profit on the trade of 68.5 pips. Coincidentally, the trade was also closed at the exact moment that the MACD histogram turned into positive territory.
As you can see, the five-minute momo trade is an extremely powerful strategy for capturing momentum-based reversal moves. However, it doesn’t always work and it’s important to explore an example of where it fails and understand why it happens.
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The latest example of a five minute momo trade is the EUR/CHF on March 21, 2006. As seen above, the price crosses below the 20 period EMA and we wait 20 minutes for the MACD histogram to move to negative territory. placing our entry order at 1.5711. We place our stop at the 20 EMA plus 20 pips or 1.5721 + 20 = 1.5741. Our first target is the entry price minus the amount risked or 1.5711 – (1.5741-1.5711) = 1.5681. Price is trading lower to as low as 1.5696, which is not low enough to reach our trigger level. It then proceeds to reverse course and eventually hits our stop, causing a total trade loss of 30 pips.
Using a broker that offers charting platforms with the ability to automate entries, exits, stop-loss orders, and trailing stops is useful when using strategies based on technical indicators.
When trading the five minute momo strategy, the most important thing to keep in mind is trading with ranges that are too tight or too wide. In quiet trading hours, where the price simply fluctuates around the 20 EMA, the MACD histogram can swing back and forth, causing many false signals. Alternatively, if this strategy is implemented on a currency pair with too wide a trading range, the stop could be hit before the target is triggered.
This trading strategy looks for bursts of momentum on short-term 5-minute forex trading charts that a market participant can take advantage of and then quickly exit when momentum begins to wane.
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The 5 minute Momo strategy is used by currency traders looking to take advantage of short swings in momentum and therefore could be used by intraday traders or other short-term focused market players.
Scalping is the process of entering and exiting trades multiple times a day for small profits. The process of speculation in forex trading involves entering and exiting currency positions frequently for small profits. The 5 minute trading strategy could be used to help execute such trades.
The Momo 5 Minute Strategy allows traders to benefit from short bursts of momentum in currency pairs, while providing strong exit rules needed to protect profits. The goal is to spot a reversal while it’s happening, open a position, and then rely on risk management tools (like trailing stops) to take advantage of the move and not quit too soon. As with many technical indicator based systems, results will vary depending on
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