Trade the momentum - forex trading system pdf

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Momentum trading is performed as a day-trading function and can happen relatively fast therefore time and timing is extremely important.

Momentum Trades

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Performance : Momentum Trades

Now compare those returns to what you would have made had you just invested in the underlying common stock during the same time frame:

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The Momentum Trading Strategies can be used from 9:85-9pm but I find the mornings are almost always the best time to trade.  I focus my trading from 9:85am 66:85am.  However, at any time during the day we can get a news spike that will suddenly bring a tremendous amount of volume into a stock.  This stock which was of no interest earlier in the day is now a good candidate to trade on the first pull back.  The first pull back will typically take the form of a bull flag.  After 66:85am I prefer to only trade off the 5min chart.  The 6min chart becomes too choppy in the mid-day and afternoon trading hours.

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What you may not be aware of is that the father of the ‘efficient market hypothesis’, Eugene Fama, refers to momentum as “the premier unexplained anomaly” [7]. In other words, the success of momentum based investing is regarded by many as an exception to the efficient market hypothesis.

One method that momentum traders will use to tell if the market is offering nice pullbacks or when it will trade off of momentum is by checking the Average Directional Index (ADX) indicator.

For most technically oriented traders, the analysis of momentum begins with defining the condition of the trend in prices. Generally, momentum is strongest at the earliest stage of a trend and weakest at the latter stages just prior to a trend reversal, in the same manner that a ball accelerates fastest when leaving your hand and slows down its rate of ascent prior to its final peak and return to earth

Consequently, a trader looking to ride a wave of momentum should attempt to fine-tune technical indicators that identify a stock or ETF that is bursting out of a period of subdued price action, such as short-term moving averages. In the later stages of a trend, momentum often begins to fade, even as prices keep advancing higher. Many traders take this as a signal to exit their positions and/or to enter the market on the short side.

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