If you continuously have to admit failure in your cryptocurrency investment. So the first thing you must do is completely change how you view the market and your method of predicting price trends. The best way to do that is to use the Momentum indicator. In this article, Crypto Trading will share all related knowledge and effective Momentum Trading methods. So, please don’t rush to skip it, but stay a few minutes to read the next article!
Detailed explanation about Momentum indicator
So what is Momentum that can help you change the way you view the market and make accurate predictions? Let’s find out in the information below from Crypto Trading.
What is the concept of Momentum Indicators?
Momentum indicator in English means “Momentum”. In the field of Crypto, it is understood as the power of a price trend. Accordingly, they have the function of measuring and evaluating the rate of change of prices in the market. Based on the parameters provided by this index, traders can determine the strength behind the current trend. This is also the foundation that helps traders predict reversal or continuation… to decide to enter orders more accurately.
See more: Learn Momentum – The 3 principles of optimal trading
How does the Momentum indicator work in Crypto?
Based on key points in the chart and high/low levels created from Momentum Indicators. Investors can analyze and compare extreme points and provide the operating principles of this indicator as follows:
- If the Momentum line is above the 0 line → The price trend is increasing. If the Momentum line is below the 0 line → The price trend will decrease.
- If the Momentum index reaches a maximum or minimum level → The current price trend will continue.
- If the price at the next peak is higher than the previous peak → The ongoing uptrend is exhausted and the price will likely decrease and vice versa.
- If the price at the next low is lower than the previous low → A downtrend is underway and the price will begin to adjust or reverse the trend and vice versa.
How to set up and install Momentum indicator on MT4
With such extremely vast Momentum indicator usage needs. So now Momentum has been integrated into MT4 – One of the largest and most popular trading platforms. In particular, setting up and activating the indicator is also extremely simple with these steps:
- Step 1: At the “ Menu ” bar → Select “ Insert ” → Continue to click “ Indicators ” → Select “ Oscillators ” → “ Momentum ”.
- Step 2: Start setting up the indicator on the Momentum dialog box. Includes 3 basic items:
– ” Parameters ” section: Traders need to enter the period in the ” Period ” box (or by default, 14 days). In the ” Apply to ” box, select the price analysis form (usually Close). However, traders can choose other options: highest price, lowest price… to suit their needs. The ” Style ” section is for adjusting color, and line style…
– ” Level ” section: Trader will set the Momentum line to 100 by selecting ” Add ” → Enter ” 100 “.
– Section “ Visualizations ”: Trader selects the time frame he wants to analyze.
Investors can completely reset the parameters according to their strategy. However, if you are confused when doing Momentum Trading for the first time, you can use the default parameters to start getting used to it.
Detailed instructions on how to read the Momentum Indicator accurately
After setting the appropriate parameters, investors need to know how to read the Momentum indicator to make correct predictions. Reading the price chart of this index only revolves around accelerating and slowing down the trend. Specifically:
- Momentum Indicators grow larger the faster the current price increases.
- Momentum Indicators decrease larger the faster the current price falls.
Accordingly, they will be applied to the chart with the main ideas:
- If the Momentum index is above 0, the trend is up:
– When the Momentum is above 0 and the index is increasing, the current uptrend is very strong. At the same time, prices will continue to increase.
– When Momentum begins to decrease but remains above zero, the trend is still up but the price growth rate is slowing down.
- If the Momentum index is below 0, the trend is down:
– When Momentum is below 0 and the indicator value decreases, the current downtrend is very strong. At the same time, prices will also continue to fall deeply.
– When Momentum begins to increase but is still below 0, the downtrend with price decline slows down. And the price trend likely will not reverse.
Suggest some best Momentum indicators for newbies
Momentum indicator There is not just 1, but it is a set of other Indicators that help determine the market situation such as MACD, RSI, Stochastic… However, to apply all of them effectively is quite a challenge. Difficult for newbies. Therefore, Crypto Trading has listed and suggested to traders some momentum indicators for you. Including:
- RSI:
RSI helps determine trend strength and potential price reversal. It is presented as a dynamic line that moves on a scale from 0-100. To be able to use RSI more effectively, traders should add overbought/oversold zones to the chart.
- MACD:
This is also a very popular indicator that is simple and effective. MACD can be used to analyze any trend. One of the most accurate signals of this Momentum indicator is the MACD divergence with the price chart.
- Stochastic Oscillator:
A stochastic Oscillator is a momentum indicator used to compare the closing price with the price range of an asset over a certain period. The special thing is that this indicator is very easy to read, so most traders apply it to their Momentum Trading process. It is even used for the Liquidity Mining process by liquidity miners. To better understand What is liquidity mining, readers can learn more on the website’s Blog.
3 effective trading strategies with Momentum Trading
According to the experience of industry experts, Momentum Trading will be most effective when applying the following 3 strategies:
Trade Momentum Trading when it crosses the 100 line
The first is when the Momentum indicator intersects the 100 line. For example:
- When the Momentum line goes up and crosses the 100 lines → The buyers are dominant, and the market continues to increase. This is the right time for traders to place buy orders following the trend.
- When the Momentum line goes down and crosses the 100 line → Sellers are dominant, the price may continue to decrease. This is a potential time to enter a sell order.
Note: Because the Momentum line and the 100 lines intersect quite often, the signals emitted are quite weak. Therefore, traders should combine Momentum with other technical analysis indicators.
Trade when Momentum indicator divergence or convergence of price lines
The second is when Momentum Indicators diverge or converge with the price line. This will cause peaks and troughs to form, specifically:
- When the Momentum line creates the next peak lower than the previous peak, the price line creates the next peak higher than the previous peak. At that time, divergence will appear.
- When Momentum creates a higher bottom than the previous one, the price line creates a lower bottom than the previous one. At that time, convergence will appear.
Just like the case when the Momentum line crosses the price line, the signal produced will be very weak. Especially when the price is moving strongly in a trend, making the signal susceptible to noise. Therefore, it is best to combine it with other tools and indicators.
See more: OKX: open an OKX account – Reputable crypto exchange
Trade when Momentum Indicators cross the MA line
Finally, Momentum crosses the MA line. Combining these two lines will help traders find the point where the price reverses and begins a new trend. For veteran traders, using cycles 9, 14, and 21 will have greater smoothness and accuracy. Otherwise, you can combine it with other cycles according to your needs and preferences. If:
- The Momentum line goes up and cuts the MA line → Enter a Buy order.
- The Momentum line goes down and cuts the MA line → Enter a Sell order.
You should combine Momentum, MA, and line 100 to give a more accurate signal.
Summary:
Above is all the knowledge and application of the Momentum indicator that we have compiled. Hopefully, this will help readers better understand and trade more successfully with Momentum in the future. To be able to support other knowledge bases, don’t forget to follow the Crypto Trading website!
FAQs:
What is Momentum? What indicators does Momentum include?
Momentum is a form of momentum indicator in financial investment. Includes many small indicators such as RSI, Stochastic, MACD…
Should Momentum be used in combination with other Indicators?
Have. Your trading will be most effective when you know how to combine indicators.
On which platforms can the Momentum index currently be established?
Traders can install and set up Momentum on MT4, MT5… or other platforms.
