The FX Bootcamp Guide to Strategic and Tactical Forex Trading

MOMENTUM OF PRICE

There are many definitions of momentum. Here are some definitions that are rolled into my own use, as observed in forex trading:

1. In quantum mechanics, momentum generally describes a physical system and corresponds to an observable phenomenon.

2. In mathematics, it is the force of movement; impetus, as of a physical object or course of events.

3. In philosophy, momentum is derived from “moment,” the present time or any other particular time.

4. In geometry, momentum is the product of a physical quantity and its directed distance from an axis.

 

In forex trading, I define momentum as the direction of price, at the moment, in relation to the speed of the market. What is price doing at the moment?

Measuring Momentum

Momentum is a measurement of current price action; what price is down right now? Therefore, to measure momentum of price use short-term moving averages. For instance, you can use a combination of EMAs such:

• 3/5

• 5/8

• 8/13

 

Whatever seems to work for you is fine. At FX Bootcamp, we use 5/8. Once again, they are both numbers from the Fibonacci sequence, as most of our setting are.

Note: the 8 is a simple moving average, unlike all our other moving averages, which are exponential moving averages. I found this to be effective, as it slows the study down. As a conservative trader, I want the moving averages to cross less often, not more.

Based on the angle and separation between these two moving averages, you will be able to define the momentum ...