Top 5 Momentum Trading Strategies to Try in 2023

What is Momentum?

The Momentum we are talking about here is not the momentum that relates to the strength of the market price.

Rather, it is another type of oscillator on the Olymp Trade platform, which measures the momentum or strength of the price.

Momentum then is a technical analysis tool that measures the momentum behind the movement of the price of an asset over a given period.

In doing so, it helps identify the direction of price momentum as well as potential price reversal points.

It does so using mid-level and line crossovers as well as overbought and oversold levels.

Components of the Momentum Oscillator.

The Momentum oscillator is made up of the following components:

• A mid-level (100 level).
• A fast line, histogram, area, or dots oscillating about a 100 level.
• A slow line, histogram, area, or dots oscillating about a 100 level together with the fast.
• Upper and lower physically fixed limits whose values keep fluctuating.

Basic Signals Provided by the Momentum Oscillator.

If you would like to generate any signal from the Momentum oscillator, only observe the following:

• The relationship between the fast and slow Momentum line, histogram, area, or dots.
• The relationship between the fast Momentum line, histogram, area or dots, and the mid-level (100 level).
• How the fast Momentum line, histogram, area, or dots behaves in relation to the upper and lower physically fixed limits whose values fluctuate.

Basically, price momentum is upwards when the fast Momentum oscillator line, histogram, area, or dots is above the slow one and has crossed over from below to above the 100 mid-level.

That is a bullish signal.

On the contrary, price momentum is downwards when the fast Momentum oscillator line, histogram, area, or dots is below the slow one and has crossed over from above to below the 100 mid-level.

That would be a bearish signal.

That is not all.

We mentioned that how the fast Momentum oscillator line, histogram, area, or dots behaves in relation to the upper and lower physically fixed limits is also important.

That works in the manner of overbought and oversold conditions to hint at trend and price reversals.

That said, if the fast Momentum oscillator line, histogram, area, or dots had previously hit the upper fixed limit and is now descending towards the 100 mid-level, then such is a bearish reversal signal.

On the other hand, if the fast Momentum oscillator line, histogram, area, or dots had previously hit the lower fixed limit and is now ascending towards the 100 mid-level, then such is a bullish reversal signal.

Are you wondering if there is anything more that I am hiding from you?

There is absolutely nothing more. The Momentum oscillator is that simple to use.

Momentum Oscillator Trading Strategies.

You might be wondering what Momentum oscillator trading strategies are.

If you are, then they are any trading techniques that employ the use of the Momentum oscillator at any point.

Whether other tools are incorporated in the strategy or not, provided the Momentum oscillator is present in the system, then such is a Momentum oscillator trading strategy.

The Momentum oscillator was not introduced on the Olymp Trade trading platform yesterday.

It has been there and traders have been using it for trading. Some have tried to formulate strategies around it which may have failed or worked.

Thousands of trading strategies based on the Momentum oscillator do exist.

But one thing you can be sure of is that only a few of them work, and are effective and profitable.

So which are these few Momentum oscillator trading strategies which work most effectively and are most profitable for Olymp Trade traders?

In this post, I unearth the top 5 Momentum trading strategies for Olymp Trade.

Top 5 Momentum Oscillator Trading Strategies for Olymp Trade.

Wondering if you read that right or not? Well, I can assure you that you read it right.

You are about to stop struggling to look for effective trading strategies based on the Momentum oscillator for your Olymp Trade account trading.

So what do I mean by the top 5 Momentum trading strategies? I mean the topmost, best, and effective trading strategies based on the Momentum oscillator.

If they are the best and most effective, then it goes without saying that such strategies are indeed the most profitable of all trading strategies based on Momentum that we know.

Tired of waiting? Curiosity killed the cat. Haha.

Well, the wait is over. Here are the top 5 Momentum oscillator trading strategies for Olymp Trade:

• The Momentum – EMA Trading Strategy.
• Momentum Price Reversal Trading Strategy.
• The Momentum – Moving Average Trading Strategy.
• Momentum Divergence Trading Strategy.
• The Momentum – Trend Line Trading Strategy.

1. The Momentum – EMA Trading Strategy.

This strategy brings together the Momentum oscillator and the Exponential Moving Average (EMA) to form a foolproof trading strategy.

Because the introduction is filled to the brim with stuff about the Momentum oscillator, we can focus our attention on the Exponential Moving Average (EMA) next.

Exponential Moving Average (EMA).

 

The Exponential Moving Average is a technical indicator that calculates and shows the average of a given range of prices of an asset over a specified number of periods.

In this strategy, the EMA used is applied in default settings of 10 periods.

EMA is different from other moving averages because it places a greater significance on the most recent data in its calculation, making it a more preferable moving average.

EMA presents in the form of a continuous line on the main chart.

The calculations are presented in the form of a line connecting the results of the calculations in a smoothed continuous line.

When the EMA is sloping upwards and the price is trading above it, then the market is on an uptrend.

However, when the EMA is sloping downwards and the price is trading below it, then the market is on a downtrend.

The Strategy.

Are issues of what EMA is and how it works settled now? Well, I hope they are. So exactly how do traders apply the EMA together with the Momentum Oscillator in one strategy that actually makes money? Let us see.

The primary tool in this strategy will be the EMA, which we shall use to obtain trading signals. We can then confirm the signals using the Momentum oscillator. Ready for this?

Here we go.

Step 1 – Signal.

The first step of the strategy is the generation of a trading signal using the EMA. The EMA gives both bullish and bearish signals in the following manner:

• Bullish EMA signal – the Exponential Moving Average must be sloping upwards and the price having crossed to trade above it.
• Bearish EMA signal – the Exponential Moving Average must be sloping downwards and the price having crossed to trade below it.

Step 2 – Confirmation.

Do you have either a bullish or bearish EMA signal?

You must then subject it to a confirmatory test using the Momentum oscillator. Here is how to do so:

• Bullish signal confirmation – the fast Momentum oscillator line, histogram, area, or dots must be above the slow one and have recently crossed over from below to above the 100 mid-level.

Alternatively, the fast Momentum oscillator line, histogram, area, or dots must have previously hit the lower fixed limit and now ascending towards the 100 mid-level.

• Bearish signal confirmation – the fast Momentum oscillator line, histogram, area, or dots must be below the slow one and have recently crossed over from above to below the 100 mid-level.

Alternatively, the fast Momentum oscillator line, histogram, area or dots must have previously hit the upper fixed limit and now descending towards the 100 mid-level.

Step 3 – Entry.

Enter a buy position following a confirmed bullish signal and a sell position following a confirmed bearish signal.

Step 4 – Exit.

Exit the buy position once the fast Momentum oscillator line, area, dots, or histogram dips below the 100 mid-level from above.

On the other hand, exit the sell position if the fast Momentum oscillator line, area, dots, or histogram rises above the 100 mid-level from below.

Alternatively, exit the buy position once the price crosses to begin trading below the EMA. Exit the sell position once the price crosses over to begin trading above the EMA.

2. Momentum Price Reversal Trading Strategy.

The Momentum price reversal trading strategy is a bullish and bearish reversal strategy that applies the concepts of Price Action coupled with the Momentum oscillator.

The most significant concepts of price action applied in this reversal trading strategy are support and resistance.

Are you wondering what support and resistance might be? Well, allow me to discuss support and resistance next.

Support and Resistance.

Support is a market price level that indicates a strong buy pressure. It hints at a surplus of buyers and so falling prices, almost always, seem to reverse upwards once they reach such price level or zone.

Resistance, on the other hand, is a market price level that indicates strong selling pressure.

It points to a surplus of sellers and so rising prices, almost always, seem to reverse downwards once they reach such price level or zone.

Usually, no indicator will tell you that this is a support level or this is a resistance level.

You spot support and resistance levels using price action. I think it would also be prudent if we talked briefly about price action also.

Price Action.

Price action is basically how the price behaves.

If a trader uses price action to trade, they simply observe the highs and lows of the price and obey what the price is saying about itself without the influence of any indicator, oscillator, or technical tool.

Price action may be in many forms such as support levels, resistance levels, trend breakouts, and many more concepts.

The concepts we shall dwell on here, are support and resistance.

That said, you will observe a price level or zone at which many and the most extreme swing highs seem to form regularly and call it resistance.

On the contrary, you will observe a price level or zone at which many and the most extreme swing lows seem to form regularly and call it support.

Use that information together with our prior definitions of support and resistance to connect the dots.

The Strategy.

Understood support and resistance?

Well, we can then proceed to see how the concepts of support and resistance can be used with the Momentum oscillator for profitable trading.

The primary tool in this strategy will be the concepts of support and resistance. Signals which support and resistance give can then be confirmed using the Momentum oscillator.

Step 1 – Signal.

Here is how to obtain bullish and bearish signals using support or resistance:

• Bullish support signal – establish a zone of strong buy pressure, where falling prices, almost always, seem to reverse upwards once they reach that zone.

That will be the support zone and a bullish signal. Note that the support may have either a horizontal or diagonal layout.

• Bearish resistance signal – establish a zone of strong sell pressure, where rising prices, almost always, seem to reverse downwards once they reach that zone.

That will be the resistance zone and a bearish signal. Note also that the resistance may have either a horizontal or a diagonal layout.

Step 2 – Confirmation.

If you have your bullish or bearish signal at hand, then let me show you how to confirm it using the Momentum oscillator. Here are the confirmation specifications:

• Bullish signal confirmation – the fast Momentum oscillator line, histogram, area, or dots must have previously hit the lower fixed limit and now ascending towards the 100 mid-level.

Alternatively, the fast Momentum oscillator line, histogram, area, or dots must be above the slow one and have recently crossed over from below to above the 100 mid-level.

• Bearish signal confirmation – the fast Momentum oscillator line, histogram, area or dots must have previously hit the upper fixed limit and now descending towards the 100 mid-level.

Alternatively, the fast Momentum oscillator line, histogram, area or dots must be below the slow one and have recently crossed over from above to below the 100 mid-level.

Step 3 – Entry.

Enter a buy position following a confirmed bullish signal and a sell position after confirming a bearish signal.

Step 4 – Exit.

Exit the buy position once the fast Momentum oscillator line, area, dots, or histogram dips below the 100 mid-level from above.

On the other hand, exit the sell position if the fast Momentum oscillator line, area, dots, or histogram rises above the 100 mid-level from below.

3. The Momentum – Moving Average Trading Strategy.

This is a trading strategy that involves the use of the Momentum oscillator and a moving average on the same window.

Crossovers between the fast Momentum oscillator line, area, dots, or histogram, and a moving average are considered in the context of the market strength and taken as high probability signals.

So are you wondering what a moving average is? We can talk about moving averages next.

Moving Average.

A moving average is a technical indicator used to smooth the prices of an asset in a bid to show the overall direction that the price is headed.

That is to mean that moving averages are trend trading indicators and whatever they do is aimed at showing where the mark is headed.

There are different types of moving averages, each of which has a different formula of calculation. These include the following:

• Simple Moving Average (SMA).
• Exponential Moving Average (EMA).
• Weighted Moving Average (WMA).

So how do moving averages look like?

No matter the type, all moving averages are represented by a simple continuous line that is not angular but smoothed.

They can be applied on the main chart and windows belonging to other indicators as well.

So which Moving average is the most preferred?

It all depends on what works best for you. If it is the Simple or the Exponential or the Weighted which works best for you, run with it.

Look at the individual moving average types below and note a thing or two about each.

Simple Moving Average (SMA).

The Simple Moving Average is a technical analysis tool that calculates and shows the average of a given range of prices of an asset over a given number of periods within that range.

Exponential Moving Average (EMA).

The Exponential Moving Average, just like SMA, calculates and shows the average of a given range of prices of an asset over a specified number of periods in that range.

The only thing that makes it different from SMA is that EMA places a greater significance on the most recent data in its calculation, making it more preferable.

Weighted Moving Average (WMA).

The Weighted Moving Average is a technical analysis tool that calculates the average of a given range of prices of an asset over a given number of periods.

What makes the WMA different from both SMA and EMA is that the WMA assigns greater weighting on most recent data and less weighting on past data.

Each number in the data set is multiplied by a predetermined weight and the resulting values are added together.

The Strategy.

Do you now understand the different moving averages?

They all work the same, but for this strategy, we will use EMA in its default setting.

Therefore, apply EMA twice – one on the main chart and the other on the window belonging to the Momentum oscillator.

The primary tool will be trend strength using the EMA applied on the chart. Signals generated using such concepts can then be confirmed using the Momentum oscillator – EMA interactions.

Step 1 – Signal.

The price must be strongly trending either upwards or downwards.

You don’t want to trade Momentum oscillator – EMA crossovers in an undecided market.

Those choppy price movements will harm your account more than they will build it.

The price must then commit itself to strength as shown by interactions between the EMA applied on the main chart and price action as follows:

• Bullish EMA signal – the Exponential Moving Average must be sloping upwards and the price having crossed to trade above it.
• Bearish EMA signal – the Exponential Moving Average must be sloping downwards and the price having crossed to trade below it.

Step 2 – Confirmation.

It is now time to unearth what we had in store all along.

The Momentum oscillator – EMA crossovers as a confirmatory test of a trending market.

Here is how to confirm your bullish and bearish signals in such a manner:

• Bullish signal confirmation – besides being above the slow Momentum oscillator line, area, dots, or histogram, the fast Momentum oscillator line, area, dots, or histogram must have crossed over from below to above the EMA applied in the same window.

It is even a stronger bullish signal if such fast Momentum oscillator line, dots, area, or histogram crossover spills over from below to above the 100 mid-level.

• Bearish signal confirmation – besides being below the slow Momentum oscillator line, area, dots, or histogram, the fast Momentum oscillator line, area, dots, or histogram must have crossed over from above to below the EMA applied in the same window.

It is even a stronger bearish signal if such fast Momentum oscillator line, dots, area or histogram crossover spills over from above to below the 100 mid-level.

Step 3 – Entry.

Enter a buy position following a confirmed bullish signal and a sell position after confirming a bearish signal.

Step 4 – Exit.

Exit the buy position once the price crosses to begin trading below the EMA applied on the main chart.

Exit the sell position once the price crosses over to begin trading above the EMA applied on the main chart.

4. Momentum Divergence Trading Strategy.

Momentum oscillator divergence occurs where the Momentum oscillator does not directly reflect what is happening on the price.

That is to means that where the price is making lower lows, the Momentum oscillator is making higher lows.

Similarly, where the price is making higher highs, the Momentum oscillator is making lower highs.

Remember you will only be considering the fast Momentum indicator line, area, dots, or histogram to measure the highs and the lows of divergences.

The slow line, area, dots, or histogram does not, therefore, count in respect to this.

You can actually choose to eliminate the effect of the slow Momentum oscillator line, area, dots, or histogram by setting it at 1 period so that it exactly lies where the fast one lies.

Step 1 – Signal.

The first step involves looking for a trading signal.

There are two types of Momentum oscillator divergences, just as there are two expected outcomes of a trading signal – bullish and bearish.

The signals are as follows:

• Bullish Momentum divergence – in a bullish Momentum divergence, prices make lower lows as the fast Momentum oscillator line, area, dots or histogram makes higher lows.

That means that the price is in a downtrend but the fact that the Momentum oscillator is making higher lows means that the downward momentum is slowing and chances are that an upward trend reversal is coming up.

• Bearish Momentum divergence – in a bearish Momentum divergence, prices make higher highs as the fast Momentum oscillator line, area, dots or histogram makes lower highs.

That means that the price is in an uptrend but the fact that the Momentum oscillator is making lower highs means that the upward momentum is slowing and chances are that a downward trend reversal is looming.

Step 2 – Confirmation.

A Momentum divergence only means a slowing of price momentum either upwards or downwards.

It may not, therefore, necessarily translate into a trend reversal.

That is why you need to confirm the bullish or bearish divergence signal you get from step 1 as follows:

• Bullish signal confirmation – the price is making lower lows as the Momentum oscillator makes higher lows.

Draw a trend line joining the lows of the price which must be sloping downwards.

Identify the corresponding highs of the section on which you have drawn the trend line joining the lows and draw another trend line joining those highs, which must also be sloping downwards.

For confirmation that the bullish divergence will cause an upward reversal, the price must break the trend line joining the highs upwards.

• Bearish signal confirmation – the price is making higher highs as the Momentum oscillator makes lower highs.

Draw a trend line joining the highs of the price which must be sloping upwards.

Identify the corresponding lows of the section on which you have drawn the trend line joining the highs and draw another trend line joining those lows, which must also be sloping upwards.

For confirmation that the bearish divergence will cause a downward reversal, the price must break the trend line joining the lows downwards.

Step 3 – Entry.

Enter a buy position following a confirmed bullish Momentum divergence signal. On the flip side, enter a sell position following a confirmed bearish Momentum divergence signal.

Step 4 – Exit.

Exit the buy position once the fast Momentum oscillator line, area, dots, or histogram dips below the 100 mid-level from above.

On the other hand, exit the sell position if the fast Momentum oscillator line, area, dots, or histogram rises above the 100 mid-level from below.

5. The Momentum – Trend Line Trading Strategy.

This strategy banks on the use of trend lines on the Momentum oscillator itself as opposed to using them on the price.

It is not always that trend lines are drawn on the main chart and the price but can actually be drawn on oscillators such as the momentum oscillator.

Doing so doesn’t change how effective trend lines are, because they still remain relevant and effective even when drawn on an oscillator.

Are you lost when I talk about trend lines, wondering what exactly those are? Follow me as I explain trend lines.

Trend Line.

A trend line is a drawing tool used to draw significant price levels horizontally and diagonally on the price chart as well as on oscillator windows.

It is a technical analysis tool useful to traders who are fond of drawing.

Trend lines actually form the basis of channels, for they are the very tools used to draw channels of the price on the main chart or channels of the price representation on an oscillator.

Channels and Trend Lines.

Trend lines are used to connect swing highs and swing lows of the price or its representation to get channels.

Channels, in turn, give the general direction of the price and aid in making trading decisions.

If using trend lines, you join swing highs and swing lows of the price or its representation and get an upward sloping channel, then the general price direction is upward.

In this scenario, the most important trend line is the one joining the swing lows.

The price or its representation is meant to always obey such trend line and if it breaks it downwards, then that uptrend has weakened and may reverse shortly.

On the other hand, if using trend lines, you join swing highs and swing lows of the price or its representation and get a downward sloping channel, then the general price direction is downward.

In this scenario, the most important trend line is the one joining the swing highs.

The price is meant to always obey such a trend line and if it breaks it upwards, then that downtrend has weakened and may reverse soon.

There is also a possibility of joining swing highs and swing lows with trend lines to get a horizontal channel.

In such a situation, both the upper and lower trend lines are important.

The price is meant to reverse downwards at the upper trend line and upwards at the lower trend line.

Breaking any of those lines nullifies the price range a huge price move may follow thereafter, in the direction of the breakout.

The Strategy.

Understood what trend lines are and how they work?

Well, let us now see how they can be used in concurrence with the Momentum oscillator to make money.

Note that in this strategy, you will draw trend lines on the Momentum oscillator itself.

You will use the swing highs and swing lows of the fast Momentum oscillator line, area, dots, or histogram while ignoring the slow one.

You can actually choose to eliminate the effect of the slow Momentum oscillator line, area, dots or histogram by setting it at 1 period so that it exactly lies where the fast one lies.

Note also that this strategy is based on trend line breakouts.

The trader draws trend lines on the Momentum oscillator and picks signals as such trend lines get broken.

Step 1 – Drawing.

The first-ever step of this strategy is drawing channels on the Momentum oscillator using trend lines. Here is how to go about it.

• Locate the major swing highs of the fast Momentum line, area, dots, or histogram.
• Join the highs using a trend line.
• Locate the major swing lows of the fast Momentum line, area, dots or histogram.
• Join the lows using another trend line.
• Note the direction the channel you get is sloping – upwards, downwards, or horizontal.

Step 2 – Signal.

Here are the possible bullish and bearish signals:

• Bullish signal 1 – the channel is sloping downwards, meaning that the fast Momentum line, area, dots, or histogram reflects that the price is on a downtrend.

The fast Momentum line, area, dots, or histogram is at the upper trend line which joins the highs.

Observe attempts by the fast Momentum line, area, dots, or histogram to break that trend line that joins the highs of the Momentum oscillator upwards.

• Bullish signal 2 – the channel is horizontal, meaning that the fast Momentum line, area, dots, or histogram reflects that the price is ranging.

The fast Momentum line, area, dots, or histogram is at the upper trend line which joins the highs.

Observe attempts by the fast Momentum line, area, dots, or histogram to break that trend line that joins the highs of the Momentum oscillator upwards.

• Bearish signal 1 – the channel is sloping upwards, meaning that the fast Momentum line, area, dots, or histogram reflects that the price is on an uptrend.

The fast Momentum line, area, dots, or histogram is at the lower trend line which joins the lows.

Observe attempts by the fast Momentum line, area, dots, or histogram to break that trend line that joins the lows of the Momentum oscillator downwards.

• Bearish signal 2 – the channel is horizontal, meaning that the fast Momentum line, area, dots, or histogram reflects that the price is ranging.

The fast Momentum line, area, dots, or histogram is at the lower trend line which joins the lows.

Observe attempts by the fast Momentum line, area, dots, or histogram to break that trend line that joins the lows of the Momentum oscillator downwards.

Step 3 – Confirmation.

Having a perfect trend line signal is not just enough.

You need to subject your bullish or bearish signal to a confirmation.

Here is how to go about the confirmation:

• Bullish signal confirmation – the fast Momentum line, area, dots, or histogram must break above the trend line joining the highs of a downtrend.

All attempts of the fast Momentum line, area, dots, or histogram to return below the trend line must fail.

This applies to both bullish signals 1 and 2.

• Bearish signal confirmation – the fast Momentum line, area, dots, or histogram must break below the trend line joining the lows of an uptrend.

All attempts of the fast Momentum line, area, dots, or histogram to return above the trend line must fail.

This applies to both bearish signals 1 and 2.

Step 4 – Entry.

Enter a buy position following a bullish signal confirmation and a sell position after a bearish signal confirmation.

Step 5 – Exit.

Exit the buy position once the fast Momentum oscillator line, area, dots, or histogram dips below the 100 mid-level from above.

On the other hand, exit the sell position if the fast Momentum oscillator line, area, dots, or histogram rises above the 100 mid-level from below.

Conclusion.

The Momentum oscillator is a popular technical analysis tool.

If you are an Olymp Trade trader who fancies the tool, then you must have found a goldmine in this post.

Above there, you do not just have trading strategies.

Rather, you have the best, most effective, and most profitable strategies based on your favorite tool, the Momentum oscillator.

If you ask me, you should proceed to your Olymp Trade trading account to apply the above top strategies.

The next thing to do is to just watch your account take a turn from deterioration to growth.

Happy Trading!