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The FX Bootcamp Guide to Strategic and Tactical Forex Trading by Wayne McDonell

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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 ...

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