Introduction to the Momentum Strategy
The Momentum strategy is a binary options trading strategy that uses the Momentum indicator on the forex MT4 trading platform to determine when a currency has an upward momentum (buy signal) or a downward momentum (sell signal). The Momentum indicator is an oscillator located on the indicator tab of the MT4 platform. The critical point in the Momentum indicator that is used as the reference point in determining whether the momentum is in an upward or downward direction is the 100 point. The indicator window has a signal line. When this signal line moves in an upward direction to cross above 100, the momentum for the asset is upward and this is a buy signal. Conversely, when the signal line moves in a downward direction to cross below 100, this is a downward momentum and it is a sell signal. In order to support the entries, candlestick patterns that favour the signal’s move are used.
Why does the Momentum Strategy Suck? My Opinion
The signal line is never enough to determine the accuracy of the signal. Even though candlesticks are used to support the entries, this is also not very accurate. High probability candlestick patterns are made up of 2 or 3 candles. Patterns with only one candle are not reliable. The Momentum strategy uses only one candlestick as the signal candle, which in my opinion, is not very reliable.
In addition, oscillators are known to lag. This means that by the time they provide a clear-cut signal, the market move may already have been far gone and an entry by the trader at this time may be dangerous; a retracement may already be under way and this will send the binary options trade based on the original signal into an out-of-the-money position.
Conclusion – Not for Binary Options
This Strategy is not fit with Binary Options, in my opinion. Firstly, this strategy should not be used for the short term expiry trades, and that’s what Binary Options is all about. The trader should allow enough time for the trade to move in the expected direction
Second, The Momentum strategy is a tricky system to deploy. It is very easy to generate a false signal (or a delayed signal) with this strategy. As such, it is advised that traders actually take time to get the confirmation that they need from the Momentum indicator and the candlesticks, as well as pivot point calculators before engaging in any trades. To cap it all up, this strategy can be used to trade the Touch/No Touch as well as the boundary trades in the binary options market.