5.7 Momentum Indicator trading instructions Video Lecture | Forex: Learn and Master Trading (English) - Business Basics

hi welcome back to capex forex trading
comm in this video we're going to
discuss the momentum indicator which is
used to measure strength and weakness of
a trend so if your trend trader this is
an absolute must indicator to use and
the reason why is because it provides us
with good signals for entering and
exiting a trend now before we get into
how to trade the indicator the one thing
you need to bear in mind is that this is
what's called a leading indicator this
means that it works slightly ahead of
price so what it will do is provide
positive reading for us before a trend
actually begins so it's a kind of a very
good predictor of trend creation what
you also must bear in mind is that the
lower the time frame do more choppier
the indicator is so I've got the
indicator in this window here and I'm
currently in the daily timeframe but if
I scroll or move timeframes downwards
you can see H 4 H 1 M 30 and the lower I
go the more choppier the indicator gets
and ventually until we get to the M 1
timeframe so what we can what we're
going to do for the sake of this video
tutorial is keep the timeframe in the
daily time frame so how do we trade it
well the first thing we need to do is
draw a horizontal line at the center
point of the indicator and so we need to
set the value at 100 and double-click
that line so it doesn't move now other
pieces of software use the value of zero
for the center point but don't worry the
actual placement of the line is exactly
the same as a what I've done here it's
just some brokers tend to use 0 some
brokers tend to use 100 it does not
matter there is actually the same point
so you don't need to worry about that
now there are three ways in which we can
use this indicator and the first one I'm
going to go through now the first way
focuses on the center line that we've
drawn on our charts just a second ago
and realistically the only thing we need
to do is identify on which side of the
line the indicator is on is it above the
center line or is it below the center
line so if I get my cursor here
and we correlate this with the price
chart itself here you can see that as I
move my cursor to the right where the
momentum indicator is above the center
line you can see that we have an uptrend
when I place my cursor at the place
where the momentum indicator is below
the center line you can see that we have
a downtrend okay and that is as
complicated as this gets the only thing
you need to make sure you don't do is
trade in the opposite direction so I
don't place a buy when the indicator is
below the center line and don't place a
sell when the indicator is above the
center line so you can see just from
that simple example how powerful this
indicator is because it's a leading
indicator so as I said the only thing
you need to do is make sure that you
don't trade in the opposite direction of
the indicator itself the second way
which we can use this indicator is by
looking for divergence between prices
and the indicator itself so what we've
got here for example is prices making
two lower lows so we've got a lower low
there and the lower low there at exactly
the same time the indicator is showing
us something completely opposite so we
got a low here but we have a higher low
here so you can see that prices and the
indicator are going in two opposite
directions so whilst we've got lower
lows in the price chart we've got higher
lows in the indicator window so
essentially in the way in which we would
trade this if it was a strategy we've
got a formation or or a version of a
double bottom being form here so what we
would normally do is trade or place a
trade at this point which is equivalent
to that middle peak here which is in
between those two lows so we've got the
peak there and we've got the two lows
there once the price gets to a price
level that's at the same level as that
middle of peak we would place a trade so
as you can see this diversion trading
with the momentum indicator would have
worked here the profit we would have
been looking for 121 pips
that's about right yep in fact what
would what we would do is trade the
lower side so we were looking for about
100 pips and that'll be around here so
we will get out at this level here
so you can see that this way is just a
very simple way to trade by using the
momentum indicator and the divergence
between prices and itself the last way
in which we can use this indicator is by
looking for a breakout so in terms of
our example if I just joined these lows
here you can see that we have a standard
trend line that joins various lows in
that uptrend and then we have a breakout
here which is normally where we would
take the trade make a cell and then
profit from all of this decreasing
prices here we basically need to do
exactly the same thing in the momentum
indicator so we need to match up the
lows of the trend line with the lows of
the momentum indicator so we will just
take a trend line and just draw that
right across here so we're joining these
lows and these lows with these lows and
these lows so as you can see here if I
just get my cursor what we have is a
breakout of the momentum indicator line
but at the same time at this point here
we haven't got a breakout in price so we
leave this line in the price chart to be
as it is but we wouldn't move the
momentum indicator connections a bit
further down so now we're connecting
this low with this low so what happens
here we now have a breakout in this area
here of the momentum indicator and what
is happening in the price chart at the
exactly the same time look we have a
breakout just here and this is where we
would take the trade and normally place
a profit target that's equidistant to
the top of that uptrend there so we're
looking for 217 pips
not quite 217 yeah we would actually
we'll probably would have got yet not we
would have got them at this point here
so we would have had to wait a little
bit too we have a couple of retest which
is here and here but essentially soon as
the momentum indicator breaks as long
if we have a price break at the exactly
the same time that's a good confirmation
for us that we are able to take that
trade ok guys that concludes its lesson
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