Traders often use technical indicators to discover the best places to open transactions. There are plenty of indicators available on the Olymp Trade platform. Some of them are good as stand-alone tools, others work better in combinations. Today we are going to discuss a trading strategy for CFDs that joins the Momentum with the Exponential Moving Average.
Key Takeaways🔑
| →A trading strategy combining Momentum and Exponential Moving Average (EMA) indicators can be effective in CFD trading. |
| →Long positions can be opened when the Momentum indicator crosses the 100 line moving upwards and the candle closes above the EMA line. |
| →Short positions can be opened when the Momentum indicator moves downwards, crossing the middle line, and the candle closes below the EMA line. |
Contents
How to set the Olymp Trade chart
Log in to your trading account and choose the instrument you are going to trade during this session. Define the timeframe. This strategy gives the best results on the 30 minutes or longer timeframes.
Now, click on the indicators icon and find the EMA. Add it to the chart and choose the period of 20. Then repeat the procedure to attach the Momentum indicator as well.
On the Olymp Trade platform, the Momentum indicator consists of 2 lines. The first one is the momentum line. The other is the moving average of the momentum line. We don’t need them both. In order to have just one line in the momentum indicator window, I have set the momentum period to 20. Then I’ve set the moving average period to 1 and made its line a bit bolder. This way on my chart only one line is visible. It is MA of momentum, but having the period set to 1 it is actually the same line as momentum. See the picture below.
Trading CFDs with the Momentum and the EMA indicators
You have two indicators added to your Olymp Trade chart. All you need to do is to analyse how they move and to open trade when the signal is produced. And what are the signals for the long and short positions?
A signal to open a long position on Olymp Trade
The Momentum is oscillating around the 100 line. It should cross this line moving upwards in order to use it as a signal to open a long position. Moreover, a candle ought to close above the EMA line. The strongest signal is when these two events happen simultaneously, however, 1 to 3 candles difference is also acceptable.
A signal to open a short position
The opening of a short position should be done when the situation on the chart is quite opposite. The Momentum indicator should move downwards and cross the middle line. At an identical time (or within 1 – 3 candles) a candle should close below the line of the EMA indicator. Now, you can enter a sell trade.
The length of your position depends on the occurrence of an opposite signal. That is when the Momentum indicator comes back to the 100 line and when the candle closes below (for long positions) and above (for short trades) the EMA line.
Pros and Cons of Using the Momentum + EMA Strategy
Advantages:
- ✅ Combining Momentum and EMA indicators can provide clearer trading signals.
- ✅ Suitable for traders of different experience levels.
- ✅ Can be applied to various timeframes, including 30 minutes or longer.
Disadvantages:
- ❌ Requires a visible trend in the market; not effective in sideways markets.
- ❌ Relies on timely execution of trades based on indicator signals.
- ❌ Should be used in conjunction with risk management strategies for optimal results.
| Signal | Action |
|---|---|
| Momentum crosses 100 line moving upwards | Open a long position |
| Momentum moves downwards, crossing the middle line | Open a short position |
Summary
A strategy that combines the Momentum and the EMA indicators is not really complicated. It requires, however, there is a visible trend in the market. Avoid using it when the price is moving sideways.
You can utilise this strategy regardless of your level of trading experience. You just need to add two indicators to your Olymp Trade platform and await the signals.
Two conditions have to be met for a signal to be a reliable one. The first is the Momentum line, which should cross the middle line on the way up or down. The other condition is that the candle closes above or below the EMA line.
You can hold the position open as long as you do not receive a signal to do otherwise. This signal is produced when the Momentum moves back to the middle line and the candle closes either below or above the EMA.
Open the Olymp Trade demo account and practice using the Momentum + EMA strategy. Move to the real account when you feel confident enough to make some real profits.
I encourage you to share your opinion on today’s strategy in the comments section. You will find it further down the site.
Good luck!
Q&A – Momentum + EMA Trading Strategy
- Q: What indicators are used in the Momentum + EMA strategy?
- A: The strategy combines the Momentum indicator and the Exponential Moving Average (EMA) indicator.
- Q: What conditions should be met for opening a long position?
- A: The Momentum indicator should cross the 100 line moving upwards, and the candle should close above the EMA line.
- Q: How can I identify a signal to open a short position?
- A: Look for the Momentum indicator moving downwards, crossing the middle line, and a candle closing below the EMA line.
- Q: Is the Momentum + EMA strategy suitable for all market conditions?
- A: The strategy works best when there is a visible trend in the market and may not be effective in sideways markets.