What is the Five Minute “Momo” Strategy?
The Five Minute “Momo” Strategy is a momentum trading technique that relies on the confluence of the EMA with the MACD to pick trade entries.
This trading strategy is applicable to the 5-Minute price chart of any asset, hence the phrase ‘Five minutes’ before the strategy name.
Lien and Boris Schlossberg, known Forex analysts, authored the Five-minute “Momo” strategy.
It is a simple strategy to set up and to use in trading.
Now, you don’t just use any EMA settings.
The EMA applicable here is the 20-period EMA.
You can use MACD in its default settings.
EMA 20 and MACD are the only indicators you will require for this strategy.
If you are wondering how the setup for the five-minute “Momo” strategy looks like, then wonder no more.
In today’s post, I will show you how it looks.
Here are the specifications:
- Bullish Setup: The price has crossed above EMA 20 while the MACD histogram has shifted from below to above the zero line, not more than 5 histogram bars ago.
- Bearish Setup: The price has crossed below EMA 20 while MACD histogram has shifted from above to below the zero line, not more than 5 histogram bars ago.
Setting Up and Trading the Five Minute “Momo” Strategy in Olymp Trade.
The five-minute “Momo” strategy is a simple momentum trading technique, as we have mentioned.
You do not need to do a lot on your charts and identifying the trade setup is so easy.
That way, the strategy becomes easy to set up and trade in Olymp Trade.
Here are the simple steps to setting up and trading the five-minute “Momo” strategy in Olymp Trade:
Change the Chart Timeframe.
The five-minute “Momo” strategy has the phrase ‘five minutes’ in it.
Meaning, it is a strategy only applicable to 5-Minute price charts.
This is something we mentioned in the introduction as well.
If your chart is set on any other timeframe then, you must change it to the 5-Minute timeframe.
It is what the strategy requires of you.
Set Up the Indicators.
From the introduction, the five-minute “Momo” strategy relies on the confluence between two indicators – EMA and MACD. EMA is simply the Exponential Moving Average while MACD is the Moving Average Convergence and Divergence.
The Exponential Moving Average (EMA) is a trend indicator that is used to tell the direction of a market trend.
The Moving Average Convergence and Divergence (MACD), on the other hand, is an oscillator used to tell the strength of a market trend.
A concurring confluence between the trend direction and its strength would serve as a powerful trading strategy, and that is what the five-minute “Momo” strategy is.
Click on the Indicators tab and choose EMA, then apply it on your chart, adjusting its period to 20.
Click on the same Indicators tab again and this time, choose the MACD and apply it in its default settings.
That way, only two tools will appear on your chart – EMA 20 and default MACD.
If so, then it is time to proceed to spot a trade setup so that you can trade.
Identify a Trade Setup.
The purpose of the indicators you set up is to help spot a trading signal or setup.
I hope you do remember how the bullish and bearish five-minute “Momo” strategy setups look like. Here is a quick reminder for you:
- Bullish Setup: The price crosses from below to above EMA 20. The MACD histogram shifts from the negative side below the zero line to the positive side above the zero line. That MACD histogram shift should not exceed 5 histogram bars.
- Bearish Setup: The price crosses from above to below EMA 20. The MACD histogram shifts from the positive side above the zero line to the negative side below the zero line. That MACD histogram shift should also not exceed 5 histogram bars.
Spot any of the two setups and then you will be best suited to proceed to the next step.
Set Up Buy Stop or Sell Stop Pending Order.
Which of the two five minute “Momo” strategy setups have you identified?
Is it the bullish or the bearish setup?
Here is how to set up buy stop or sell stop pending orders depending on the setup you identified:
- Bullish Setup: Once you spot such a setup, place a buy stop pending order 10 pips above the level EMA 20 is currently at.
- Bearish Setup: If this is the setup you identified, place a sell stop pending order 10 pips below the level EMA 20 is currently at.
If your buy stop or sell stop pending order placed 10 pips or ticks away from the level EMA 20 is, finally gets triggered, then the price is in a good momentum.
It is meant to move significantly in the direction of your trade. Remember the five-minute “Momo” strategy is a momentum trading technique.
Adjust Stop Loss and Take Profit.
The MACD and EMA combo does not pinpoint trade entries very accurately.
Therefore, Stop Loss for this strategy should be further away compared to other strategies.
Actually, the Stop Loss for the buy trade should be at the most recent swing low while that for sell trade at the most recent swing high.
Momentum trading techniques are meant to spot entries supposed to result in significant price moves.
In such a scenario, you cannot tell how long the move is likely to be. Therefore, letting your profits run is the best idea.
What that means is that you should have an initial Stop Loss as stipulated above.
In addition, trail your stop loss to lock in profits as the position grows in your favor.
Was anything difficult as regards setting up and trading the Five Minute “Momo” Strategy in Olymp Trade?
It is as simple as that.
Simple tools translate into a simple trading strategy hence an easy manner of growing your trading account.
Use the five-minute “Momo” strategy in your Olymp Trade account and grow that account consistently and easily.