Momentum trading with the help of RSI and EMA indicators

There are thousands of proven strategies on the web, but you have to choose the one that works best for you in order to help your trading. Today I will introduce the "momentum trading strategy" to you, I hope you can discuss it together, and please correct me if there is something wrong.

1. What is a momentum trading strategy?

Momentum is a term that refers to buying when a currency appreciates and selling when it falls. This is a very popular trading strategy among most professional traders.

When a large number of trades are initiated, a reliable market trend is formed. At this point, we can identify and determine the direction of the trend through the chart. Under the strong bullish momentum, the price will actively create higher highs at a constant speed. Also, with strong bearish momentum, the price will make lower lows. Once you have identified market momentum, you can create a trading plan for the next steps. But note that trading always has an uncertain environment, and no one can guarantee 100% price fluctuations.

2. Momentum trading strategy

1. Select a currency pair

First, you need to determine the price change of some selected currency pairs in the last three months (be careful to do this calculation on weekends). After finding the price change in the last three months, you also need to study the price action in the last 13 weeks.

In terms of currency pairs, there is no rule on how many pairs of currencies should be selected, and the suggestion is seven major currency pairs and cross currency pairs. It is better not to choose exotic currency pairs, because they are volatile and risky.

After calculating the price changes in the last three months, it's time to choose a currency pair with a much higher volatility than the others. Since this is a proven trading strategy, the currency pair can provide an average annual profit of 17%. Based on market observations over the past seven years, prices over the last three months have become a reliable factor in choosing a momentum-based strategy.

2. Develop a trading strategy

Since we have a predetermined trend, we need to implement a trend continuation trading strategy to better improve the overall trading results. In this trading strategy, we will use the 20 dynamic exponential moving average (EMA) as a trend continuation indicator.

Once the price decouples from the 20 SMA, trade direction should be set based on market momentum. Additionally, there is an effective method for determining the strength of a trend: the RSI.

RSI stands for Relative Strength Index. It has a 0-100 level indicator. If the price breaks below the 30 level, the price may reverse upwards. On the other hand, if the price rises above the 70 RSI, a decline is likely.

When selling, follow these conditions:

① Prices are moving in the direction set by market dynamics.

② RSI drops from 70 or 80 levels.

③The price decouples from the 20 moving average in the form of a reversal candlestick.

When buying, please follow the following conditions:

① Prices are moving in the direction set by market dynamics.

② RSI rose from the 20 level to the 30 level.

③The price decouples from the 20 moving average in the form of a reversal candlestick.

Start trading once a candle closes above or below the dynamic level.

 3. Stop loss and take profit

After placing a trade, you need to determine the strength of the trend. Set your stop loss 15 pips or 20-day average true range (ATR) above or below the reversal candle.

To set a stop profit, it is necessary to determine the strength of the running trend. In addition, you can increase your take profit level after you can determine that there are sudden fundamentals or other factors that indicate that the price may break through the near-term support or resistance level.

 3. Conclusion

If you agree with this trading method and decide to implement it, there are a few key points to keep in mind:

1. Find direction by calculating the market momentum for the last 13 weeks.

2. Follow the market trend, use dynamic and hourly 20 EMA candle levels and use appropriate candlestick patterns.

3. Set a stop loss according to the price trend or ATR.

4. Follow the market trend and set a stop profit.

In this momentum trading strategy, trade management is the most challenging part as it requires strict adherence to market trends. We know that the market is uncertain, so follow the market trend more firmly. In addition, you should follow the money management system that suits you. It is very rough to say that it is no problem to take less than 2% risk for each transaction.