The momentum indicator based trading strategy is one in which we are simply following the trends momentum. As with all trends there are swings and shifts in momentum before large movements and this is what we are looking to try and follow.
One of the best ways to see these momentum trades is with – you guessed it, the momentum indicator. This can be added to your chart if you are using Metatrader 4 by going to:
(Insert -> Indicators -> Oscillators -> Momentum).
Now the best use I have seen of this indicator is using the default 100 value level which is pre set in the indicator in most cases. However if you do not see this level you can always manually draw it with a horizontal line at the 100 mark.
When blue line moves above the 100 level (like in the example) it is a good indication that the pairs momentum is rising and you should be looking for a potential call or long trade. The reverse can be said for a put or a short trade, we would be looking for the pairs momentum line to drop below 100.
One thing that will likely help you out if you are trading with this indicator is constantly watching candlesticks with some of the price action methods listed here. Once you see candlesticks beginning to break highs or lows depending on the way momentum is moving this should help you feel more confident and thus giving you a better chance for a profitable trade.
Time Frame: Any
Pros: Easy to tell when the lines move above or below the 100 level for momentum indications.
Cons: You need to also watch candlesticks for more indications of movement.