How to trade with the Momentum indicator on Olymp Trade
Indicators provide assistance to traders in making decisions about opening and closing the positions. There are different types of them. This article is about the Momentum indicator popularized by the trader Martin Pring.
What is the Momentum indicator?
The Momentum indicator is a tool that measures the current price and divides it by the closing price at the start of the settlement period. It is on the Olymp Trade offer and belongs to the momentum indicators group.
How to set the Momentum indicator on the Olymp Trade chart
First, log in to your Olymp Trade account. Find the Chart analysis icon and click on it. The chart analysis window will appear with 3 tabs included. The first one contains indicators. You have to choose the group of momentum indicators. Then you will be able to see ‘Momentum on the list that will unfold on the right side.
You will then see the window with the indicators settings. You may adjust the colour and the width of the Momentum line. You may also change its period depending on the timeframe and strategy you are using. For more advanced trading there is also a possibility to change the source, but I would recommend leaving it as default. It defines the value that the indicator is plotted by.
The Momentum will appear in a separate window beneath your price chart. It takes a form of a line that oscillates around the accepted value of the first closing price in the period marked as the 0 line.
How to trade with the Momentum on Olymp Trade
Generally, the Momentum shows the difference between the first closing price and the current one. If the price declines in relation to the closing price from the n-period back, the indicator will drop below the 0 line. If the price rises, the indicator will grow together with it.
Before you open a trading position you must analyse the general market situation. Stay up-to-date with the news to predict price movements. Set the timeframe of your choice. Use two Momentum indicators with various periods to get the best results. The first one should be used as a confirmation of the present trend (period 20) and the second one as a signal line (period 3).
Go long with the Momentum
To open a long position with the help of two Momentum indicators you should assess the overall price movement. Look at the chart and check if the price is rising. Then see the Momentum with the period value of 20. If it moves above the middle line, you have received the confirmation of the uptrend. The last step is to catch the moment when the second Momentum with period 3 crosses the 0 line from the bottom to top and continue to rise.
Go short with the Momentum
In order to open a short position, you should spot the downtrend on the price chart. Confirm with the first Momentum (20). If it is moving below the 0 line, there is definitely a downtrend in the market. Now, wait for the second Momentum to cross the 0 line on its way down. These are the good points for you to open a short trade.
The Momentum indicator is commonly used in many trading strategies. It is quite simple and it does not lag. Nevertheless, you should remember that there is no indicator nor strategy that can guarantee success. To strengthen your winning chances you can combine the Momentum with another indicator such as the Bollinger Bands. Consider the exemplary chart below.
The good news is there is a free demo account on the Olymp Trade platform. It is supplied with virtual cash and there is no time limit you can use it. This is a great place for you to test new indicators, different periods and combinations.
I encourage you to leave a comment in the comments section below. I would be really glad to hear from you!
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