Momentum breakouts are prime trading conditions wherein traders can find good trading opportunities. It is because momentum breakouts are likely to cause price to maneuver in a single general direction and will often end in a trend.
Momentum trading is a technical trading technique wherein traders would buy or sell a tradeable instrument based on the strength of a trend. Principally, traders trading momentum strategies are trading with a powerful force behind a price move. These strong price movements often cause price to maneuver in the identical direction and will often end in a trending market.
Momentum outside of trading is a results of mass and speed. In trading, mass and speed will be identified based on volume and the space traveled by price inside a brief period.
One approach to discover strong momentum is by observing for momentum candles. Momentum candles are long, full-bodied candles with little to no wicks. This means that price moved in a single direction inside that candle period. This is commonly accompanied by high volume trading inside that candle.
On this strategy, we will likely be using a few technical indicators as a way to confirm momentum.
Dynamic Price Channel
Dynamic Price Channel is a custom channel type indicator which relies on the Average True Range (ATR).
The ATR is largely the typical range of price candles inside a predetermined period.
The Dynamic Price Channel incorporates the ATR with moving averages as a way to discover trend, volatility, momentum and mean reversals.
The Dynamic Price Channel plots moving average line as its major line and is represented by a dashed yellow line. This line could either be a Easy Moving Average (SMA), Exponential Moving Average (EMA), or a Smoothed Moving Average (SMMA). Traders can select the choice within the parameters tab of the indicator.
Then, six lines radiate from the moving average line. Three above and three below. These lines are plotted a distance away from the center line, which is the moving average line, based on an element of the ATR.
The indicator will be used as a volatility indicator. Traders can discover volatility based on the contraction and expansion of the bands away from the center line.
It may even be used to discover trend direction, based on how the center line is sloped and based on whether certain lines act as a dynamic support or resistance within the direction of the trend.
It may also indicate overbought or oversold markets based on how price reacts against the outer bands. If price motion is showing signs of price rejection on the outer bands, then the market could either be overbought or oversold. These conditions are prime for a mean reversal.
Alternatively, the identical outer lines will be used to find out strong momentum. If price motion is showing signs of strong momentum breakout against the outer lines, the market could possibly be gaining strong momentum which could end in a trend.
Relative Strength Index
The Relative Strength Index (RSI) is a flexible technical indicator which is part of the oscillator family of indicators. It may be used to find out trends, momentum and overbought or oversold price conditions.
The RSI plots a line that oscillates throughout the range of 0 to 100. It also typically has markers at level 50, which is the midline. If the RSI line is above 50, then the market bias is bullish, while if the road is below 50, then the market bias is bearish.
It also has markers at level 30 and 70. An RSI line dropping below 30 could indicate an oversold condition, while an RSI line above 70 could indicate an overbought condition. Each conditions are prime for a mean reversal.
Nevertheless, momentum traders can also view a breach above 70 as a bullish momentum indication, and a drop below 30 as a bearish momentum indication. It’s a matter of how price motion is responding because the RSI line breaches these levels.
Traders also add level 45 and 55 to support a trending market indication. The extent 45 acts as a support level in a bullish trending market, while the extent 55 acts as a resistance in a bearish trending market.
Trading Strategy
Dynamic Channel Momentum Breakout Forex Trading Strategy is a momentum breakout strategy which trades on confluences between the momentum breakout signal coming from the Dynamic Price Channel indicator and the RSI.
On the Dynamic Price Channel, momentum is identified based on a powerful momentum candle breaking beyond the outer lines of the Dynamic Price Channel. That is represented by the red lines above and below the center yellow line.
On the RSI, momentum is confirmed based on the RSI line breaching above 70 within the case of a bullish momentum or below 30 within the case of a bearish momentum.
Confluences between the 2 momentum signals are likely to be high probability momentum signals which could end in a trend.
Indicators:
- Dynamic_Price_Channel
- Relative Strength Index
Preferred Time Frames: 1-hour and 4-hour charts
Currency Pairs: FX majors, minors and crosses
Trading Sessions: Tokyo, London and Recent York sessions
Buy Trade Setup
Entry
- A bullish momentum candle should breach above the upper red line of the Dynamic Price Channel.
- The RSI line should breach above 70.
- Enter a buy order on the confluence of each signals.
Stop Loss
- Set the stop loss on a support level just a little below the entry candle.
Exit
- Close the trade as soon because the RSI line drops below 50.
Sell Trade Setup
Entry
- A bearish momentum candle should breach below the lower red line of the Dynamic Price Channel.
- The RSI line should drop below 30.
- Enter a sell order on the confluence of each signals.
Stop Loss
- Set the stop loss on a resistance level just a little above the entry candle.
Exit
- Close the trade as soon because the RSI line breaches above 50.
Conclusion
This momentum breakout strategy produces momentum trade setups that are based on two prime quality momentum signals.
There are various skilled traders who trade using this method with various parameters and with confluences coming from multiple time frames. Nevertheless, as a standalone momentum signal, this strategy could already produce prime quality trade setups.
It is usually necessary to notice that these trade setups are likely to work well each time the breakouts got here from a decent market congestion.
Traders can practice with this strategy as a component of an overall momentum strategy with multiple timeframe confluences.
Forex Trading Strategies Installation Instructions
Dynamic Channel Momentum Breakout Forex Trading Strategy is a mix of Metatrader 4 (MT4) indicator(s) and template.
The essence of this forex strategy is to rework the collected history data and trading signals.
Dynamic Channel Momentum Breakout Forex Trading Strategy provides a possibility to detect various peculiarities and patterns in price dynamics that are invisible to the naked eye.
Based on this information, traders can assume further price movement and adjust this strategy accordingly.
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The right way to install Dynamic Channel Momentum Breakout Forex Trading Strategy?
- Download Dynamic Channel Momentum Breakout Forex Trading Strategy.zip
- *Copy mq4 and ex4 files to your Metatrader Directory / experts / indicators /
- Copy tpl file (Template) to your Metatrader Directory / templates /
- Start or restart your Metatrader Client
- Select Chart and Timeframe where you ought to test your forex strategy
- Right click in your trading chart and hover on “Template”
- Move right to pick out Dynamic Channel Momentum Breakout Forex Trading Strategy
- You will note Dynamic Channel Momentum Breakout Forex Trading Strategy is on the market in your Chart
*Note: Not all forex strategies include mq4/ex4 files. Some templates are already integrated with the MT4 Indicators from the MetaTrader Platform.
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