Different types of traders exist. Some prefer to invest long-term, others expect fast profits. Momentum traders want to move and get the results quickly. They spot an opportunity and enter. But the danger lies in the fact, that they are also prone to exit too fast when they see the market loses its strength. What they need is a good trading strategy that will allow them to protect gains. A 5-minute MOMO strategy is just a perfect fit for them.
Key Takeaways🔑
| →The 5-minute MOMO strategy is suitable for momentum traders looking for quick results. |
| →The strategy utilizes the Simple Moving Average (SMA) and the Moving Average Convergence Divergence (MACD) indicators. |
| →Always consider current market conditions and be cautious of false signals when using the strategy. |
Contents
Introduction to the MOMO strategy
You have to be logged in to your Olymp Trade account. Think well through what kind of instrument would you like to trade. Major currency pairs will be suitable for the MOMO strategy. Then choose the type of the chart and set its timeframe for 5 minutes.
In order to use the MOMO strategy, you will need to add two indicators to your trading chart. The Simple Moving Average is the first one. The period of the SMA should be set at 20. The second indicator needed is the Moving Average Convergence Divergence, which appears beneath the price chart in the form of a histogram. The settings should remain as default that is 12, 26 and 9.
Trading with the 5-minute MOMO strategy
The MOMO strategy helps in trading trend reversals. The Simple Moving Average is utilised to identify the trend in the market. The Moving Average Convergence Divergence is used to assess momentum.
Opening long positions with the MOMO
To open a long position ensure that the prices appear below the SMA20. At the same time, the MACD indicator’s readings should be negative (below the middle 0 line). You are waiting for the price to move over the SMA20 and for the MACD to move to the positive zone. The MACD should be turning positive when the price crosses the SMA, or it should turn positive during 5 candles preceding the price and SMA crossover. See the picture below. For transaction type, we chose Fixed Time Trade for the price increase with the duration of 15 minutes (three 5-minute candles).
Opening short positions with the MOMO
When you are looking for opportunities to open a short position, the price should move over the EMA20 and the readings of the MACD should be positive. The moment to open a trade occurs when the price moves below the Exponential Moving Average and the MACD is or is going to be, negative.
The MACD should be turning negative when the price crosses below the SMA, or it should turn negative during 5 candles preceding the price and SMA crossover. See the picture above. For transaction type, we use Fixed Time trade for the price decrease with the duration of 15 minutes (three 5-minute candles).
Pros and Cons of the 5-minute MOMO Strategy 😃😔
Pros:
- Effective for capturing trend reversals and trading with momentum
- Suitable for traders looking for quick results and action
- Utilizes commonly used indicators (SMA and MACD)
Cons:
- False signals may occur, requiring caution and consideration of market conditions
- Not suitable for all trading styles and preferences
- Requires active monitoring and timely execution
| Step | Action |
|---|---|
| Step 1 | Log in to your Olymp Trade account and select a major currency pair suitable for the MOMO strategy |
| Step 2 | Set the chart type and timeframe to 5 minutes |
| Step 3 | Add the Simple Moving Average (SMA) indicator with a period of 20 to your chart |
| Step 4 | Add the Moving Average Convergence Divergence (MACD) indicator with default settings (12, 26, 9) below the price chart |
| Step 5 | For long positions, wait for prices to appear below the SMA20 and MACD readings to be negative; enter when price moves over the SMA20 and MACD turns positive |
| Step 6 | For short positions, wait for prices to move above the SMA20 and MACD readings to be positive; enter when price moves below the SMA20 and MACD is or will be negative |
Conclusion
The 5-minute MOMO strategy is perfect for the momentum trades. It works best on the 5-minute timeframe charts. It is based on two indicators, the Simple Moving Average and the Moving Average Convergence Divergence. The first one helps to identify the trend, the second to catch momentum.
Like any other strategy, it is not foolproof and you should be aware the false signals may occur. Especially when the trading range is too wide or too tight. Always take the current market conditions into consideration.
The MOMO will help you trade with the trend reversals and to set solid rules for exiting transactions at the right time. Go to the Olymp Trade demo account, add the SMA and the MACD to the chart and see how today’s strategy works for you.
Wish you high earnings!
Frequently Asked Questions about the 5-minute MOMO Strategy 🧐
- Q: What is the 5-minute MOMO strategy?
- A: The 5-minute MOMO strategy is a trading strategy that focuses on capturing trend reversals and trading with momentum on the 5-minute timeframe using the Simple Moving Average (SMA) and Moving Average Convergence Divergence (MACD) indicators.
- Q: Who is the 5-minute MOMO strategy suitable for?
- A: The 5-minute MOMO strategy is suitable for momentum traders who prefer quick results and action in their trades.
- Q: Are there any drawbacks to using the 5-minute MOMO strategy?
- A: While the strategy can be effective, false signals may occur, requiring caution and consideration of current market conditions. It also requires active monitoring and timely execution.
- Q: Can the 5-minute MOMO strategy be used with any trading instrument?
- A: The strategy is most effective when applied to major currency pairs.
- Q: Is the 5-minute MOMO strategy suitable for beginners?
- A: The 5-minute MOMO strategy requires a certain level of trading knowledge and experience, making it more suitable for traders with some familiarity with technical analysis and indicators.