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5-Minute Momentum Trading Strategy
Short-term trading strategies are not something I like. It can be difficult to manage spreads.
If you trade the Forex USD/JPY pair and your broker has a spread of 4 points, then you will need to make 4 point profit in order to break even.
Momentum Trading Strategy
Momentum trading is a great way to get into trades when the market moves strongly upwards or downwards. This strategy allows you to trade after the market has stabilized or falls.This is because the momentum from the breakout will ensure that the price continues to move in the same direction.
These are the criteria:
Three candles consecutively on the 5-minute chart, where the body is small
Strong breakout candle with a larger body than the previous candles.
Position (with the trend), at the closing price for the breakout candle
Target price = 1-2x the body of the breakout candles
Stop-loss = High or Low of the Breakout Candle
This is the most important point. It is crucial to see at least three candles in which the price closed close to the opening price. This is telling you that buyers and sellers are cancelling each other and the price is getting ready for a breakout.This 5-minute price chart for the Forex EUR/USD pair, taken from my original 2014 post, shows you four profitable trades made using this 5-minute momentum forex trading technique.
This Strategy: Worst and Best Times
This forex strategy has one drawback. It will not work if you have high volatility.
This is why I think the best times to use the 5-minute forex momentum strategy are the opening hours of the London session at 8.30 and 9.00 GMT. The New York session opens at 8:30 GMT.
This forex strategy is most effective when used at night, when the market is quiet and the price is slow moving.
You can also look at other factors
You can increase your chances of winning by only trading pairs that have a high average daily range as indicated by ATR forex indicator on daily chart. Also, trade pairs with spreads no lower than 2-3 pips to maximize your chances of winning.
Last Thoughts
Simple price action strategies are what make forex traders the most successful. Another example of a strategy without indicators is this.
You can simply plot a candlestick chart, wait for three candles to appear in a row with tiny bodies, then trade the breakout.
As with all trading strategies, these trades may not be profitable. You will be able to make a profit long-term if you set realistic profit targets, stop losses, and only trade major forex currency pairs during the busiest periods of the market.
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