Moving Momentum Strategy
Trading Strategies I Professional Trading
In this article we will see moving momentum trading strategy.
Typically, chartists first establish a trading bias or long-term perspective. Second, chartists wait for pullbacks or bounces that will improve the risk-reward ratio. Third, chartists look for a reversal that indicates a subsequent upturn or downturn in price.
Learning Tip
Many trading strategies are based on a process, not a single signal. This process often involves a series of steps that ultimately lead to a signal.
Understanding
Indicators and Strategy
The strategy put forth here uses moving average to define the trend, the Stochastic Oscillator to identify corrections within that trend and the MACD-Histogram to signal short-term reversals. It is a complete strategy based on a three-step process.
Moving averages smooth prices and provide chartists with a cleaner price plot, which makes it easier to identify the general trend. The bias is bullish when stock price is above 21 period EMA line and bearish when price is below the EMA line.
The second part of this trading strategy uses the Stochastic Oscillator to identify correction.
As a bound oscillator that fluctuates between 0 and 100, the Stochastic Oscillator is ideal for spotting short-term pullbacks or bounces. A move below 20 signals a pullback in prices, while a move above 80 signals a bounce in prices.
Method
Steps to Apply
You can trade using this method in two ways: for upside move and for downside move. Here we have explained the two ways. Please note that always trade for upside move in bullish market and trade for downside in bearish market to increase chances of success.
Upside Trading: Use below mentioned steps to create bullish position.
1. Find if moving average shows a bullish trading bias, with the stock price trading above 21 period EMA line.
2. Check if stochastic oscillator moves below 20 to signal a bounce. This gives good risk-reward ratio.
3. Finally, Check if MACD-Histogram moves into positive territory to signal a upturn after the bounce.
Target / Exit Process: Please always trade with a calculated risk-reward ratio. Exit your trade if max. calculated risk level (stoploss) touches to save from further loss or reward level (target) level has reached to book profits.
Downside Trading: Use below mentioned steps to create bearish position.
1. Find if moving average shows a bearish trading bias, with the stock price trading below 21 period EMA line.
2. Check if stochastic oscillator moves above 80 to signal a bounce. This gives good risk-reward ratio.
3. Finally, Check if MACD-Histogram moves into negative territory to signal a downturn after the bounce.
Target / Exit Process: Please always trade with a calculated risk-reward ratio. Exit your trade if max. calculated risk level (stoploss) touches to save from further loss or reward level (target) level has reached to book profits.
This “Moving Momentum” strategy provides to trade in the direction of the bigger trend. Moreover, this strategy is designed to identify lower risk and higher reward opportunities by waiting for corrections.
