Momentum buying and selling is likely one of the extra well-liked methods merchants generate profits out of the foreign exchange market. That is for the straightforward motive that momentum buying and selling works.

Momentum buying and selling is solely a kind of buying and selling technique whereby merchants would take a commerce within the path of a robust momentum based mostly on a technical evaluation standpoint.

It really works just because buying and selling within the path of a robust momentum means you might be buying and selling with a robust circulate of the market fairly than towards it. Momentum is solely a situation whereby a excessive quantity of trades triggered worth to maneuver strongly in a single path in a really quick time. This typically creates a candlestick sample which is a protracted and full-bodied candle with small wicks.

Momentum buying and selling isn’t solely nice due to its comparatively higher likelihood in comparison with different reversal setups. Additionally it is nice due to its tendency to be a catalyst for a contemporary pattern. Momentum worth actions typically trigger many merchants to leap into the motion inflicting worth to maneuver strongly in a single path, which in flip may lead to a pattern. In these situations, merchants who entered the market based mostly on momentum may earn larger yields because the market would begin to pattern.

On this buying and selling technique, we might be how a confluence of reversal indicators coupled with momentum indications can lead to a excessive yielding pattern commerce.

Alligator Indicator

Invoice William’s Alligator indicator is a well-liked technical indicator which relies on a set of modified transferring averages. It’s a momentum indicator which may help merchants establish the path of the pattern, the strengthening of a pattern’s momentum, market contractions, in addition to potential pattern reversals.

This indicator consists of three modified transferring averages, notably setup as Smoothed Transferring Common (SMMA) traces. The blue line represents the longer-term transferring common, the purple line represents the mid-term transferring common, whereas the lime line represents the short-term transferring common. Being Smoothed Transferring Common traces, these traces are, because the identify suggests, characteristically very easy, making it much less prone to false indicators.

Pattern path relies on how the transferring common traces are stacked. The market is bullish if the lime line is on high and the blue line is on the underside. If the traces are stacked inversely, then the market is bearish. Market expansions or the strengthening of a momentum is recognized based mostly on the widening of the hole between the transferring common traces, whereas market contractions might be recognized based mostly on the contraction of those gaps. Pattern reversals might also be recognized based mostly on the crossing over of the three transferring common traces.

Octopus Indicator

The Octopus indicator is a momentum technical indicator which may help merchants objectively establish the newest momentum path.

This indicator is a binary kind of indicator as a result of it merely signifies whether or not the newest momentum shift is up or down. It plots a inexperienced bar by itself window each time it detects a bullish momentum, and a purple bar each time it detects a bearish momentum. The colour of the bars it plots solely adjustments each time it detects one other momentum shift in the wrong way.

Merchants can use this indicator as a momentum path filter with a view to keep away from buying and selling towards the circulate of the market.

Sign Line

Sign Line, often known as oT S Ra Sign Line, is a customized trend-following indicator which is especially centered on figuring out the short-term pattern path or momentum.

This indicator relies on a modified transferring common line. The transferring common line it plots is characteristically very easy, but on the similar time it’s set at a low interval rely making it each easy but responsive. This makes the Sign Line a wonderful transferring common based mostly short-term pattern indicator.

The road it plots additionally change coloration relying on the path of the short-term momentum. It plots a lime line each time it detects a bullish short-term pattern, and a purple line each time it detects a bearish short-term pattern.

Buying and selling Technique

Octopus Alligator Momentum Foreign exchange Buying and selling Technique is a pattern reversal technique which contains momentum into its consideration of a legitimate pattern reversal sign. It makes use of each candlestick pattern-based momentum indications and indicator-based momentum indications.

The pattern reversal sign relies on the crossing over of the Alligator transferring common traces and the Sign Line. The path of the pattern reversal relies on the path of the crossover of the Alligator transferring common traces whereas additionally incorporating the Sign Line because the shortest-term transferring common line. On high of this, the colour of the Sign Line must also verify the path of the short-term pattern.

The Octopus indicator is used to verify the newest momentum shift. Trades must be taken solely when the pattern reversal indicated by the transferring common traces agree with the momentum indication from the Octopus indicator.

A momentum candle must also verify the path of the momentum reversal, which additionally doubles because the entry sign.

Indicators:

• Alligator
  • Jaws Interval: 18
  • Enamel Interval: 13
  • Lips Interval: 10
• oT_S_Ra-Signal_Line
• Octopus_1

Most popular Time Frames: 30-minute, 1-hour, 4-hour and every day charts

Forex Pairs: FX majors, minors and crosses

Buying and selling Classes: Tokyo, London and New York periods

Purchase Commerce Setup

Entry

• The Sign Line and the Alligator transferring common traces ought to crossover within the following order:
  • Sign Line: high
  • Lime Line: second from the highest
  • Purple Line: second from the underside
  • Blue Line: backside
• The Sign Line must be lime.
• The Octopus indicator ought to plot inexperienced bars.
• Enter a purchase order as quickly as a bullish momentum candle is fashioned.

Cease Loss

• Set the cease loss on the help under the entry candle.

Exit

• Shut the commerce as quickly as worth closes under the blue line.
• Shut the commerce as quickly because the Octopus indicator plots a purple bar.

Promote Commerce Setup

Entry

• The Sign Line and the Alligator transferring common traces ought to crossover within the following order:
  • Sign Line: backside
  • Lime Line: second from the underside
  • Purple Line: second from the highest
  • Blue Line: high
• The Sign Line must be purple.
• The Octopus indicator ought to plot purple bars.
• Enter a promote order as quickly as a bearish momentum candle is fashioned.

Cease Loss

• Set the cease loss on the resistance above the entry candle.

Exit

• Shut the commerce as quickly as worth closes above the blue line.
• Shut the commerce as quickly because the Octopus indicator plots a inexperienced bar.

Conclusion

This buying and selling technique tends to work nicely in offering pattern reversal setups that might lead to an precise pattern. It’s because the pattern reversals are confirmed based mostly on the Octopus indicator and a momentum candle to have a robust momentum behind it.

The important thing to buying and selling this technique efficiently is find robust momentum candles whereas avoiding momentum candles that might trigger momentum merchants to chase worth because it has already moved too far. Merchants who can discover this steadiness constantly can generate profits from the foreign exchange market utilizing this kind of technique.