123 Momentum Breakout Forex Trading Strategy

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123 Momentum Breakout Forex Trading Strategy

Momentum trading is one of those types of trading strategies wherein if a trader masters it, anything can happen. The sky is the limit for traders who know how to trade momentum breakouts.

This is because momentum breakouts have the potential to produce the highest yields in a single trade. Often, momentum entries occur in a spot where there is little to no resistance at all after the breakout. This allows price to push further in the direction of the breakout. The only thing that would stop it is if the momentum price move losses steam.

However, momentum breakouts are quite difficult to spot before it happens. Often, traders could identify a momentum breakout only when price has moved to far and it already is too late to enter the trade. Taking the trade would entail chasing price and could be disastrous habit for a trader.

So, when should we take momentum breakouts? Or more importantly, where do we look for momentum breakouts? One of the best places to look for a momentum breakout in a chart are in congestion zones. These zones usually mean that there is a pent-up volume in the market waiting for a clear direction. If price breaks out of a congestion zone and shows clear direction, traders are going to notice and hop on to the trade pushing price further.

123 Momentum Breakout Forex Trading Strategy is a momentum breakout strategy that helps traders identify the zones where they could spot momentum breakouts. If the breakout is strong enough and it leads to a trending market, then the trader is in for a whole lot of pips.

123 Forex Patterns

123 Forex Patterns is a custom indicator that helps traders identify congestion zones or breakouts from congestion zones.

These zones are plotted based on the body of a candle that the indictor has identified to be a zone where price could potentially bounce from. It is either that price would bounce off it if price retests the area. The second scenario would be that price was not able to break out of the zone initially. The second scenario would be that price would revisit the zone and enter it. If price gains momentum and breaks out of the zone, then it could mean that price would move strongly in one direction because it has a clear momentum direction.

The indicator simply plots two lines based on the body of the candle the indicator identifies as a basis for a congestion. It plots a dodger blue line to indicate the upper limit of the zone and an orange red line to indicate the lower limit of the zone.

Hull Moving Average

Moving averages are a staple technical indicator used by many traders. It is useful for identifying trend direction and even trend reversal entries. It is also very useful for identifying dynamic supports and resistances where traders can anticipate their next trade entry.

Although moving averages are very useful simple trading tools, moving averages are usually lagging. It usually responds a tad later than what traders would hope for, causing traders to be late in an entry. Not only is it usually lagging, it is also usually producing false signals whenever the market starts to become choppy or noisy.

The Hull Moving Average (HMA) is a modified moving average that smoothens out its moving average line and manages to make it more responsive to price movements. This creates a line that produces relevant trade signals and is less susceptible to market noise and price spikes.

Trading Strategy

This trading strategy trades on momentum breakouts coming from the congestion of the 123 Forex Patterns indicator. It is based on price action and momentum candles.

Traders simply wait for price to breakout of the congestion zone plotted by the 123 Forex Patterns indicator. If the breakout candle is at the same time a momentum candle, then that candle could be a possible trade entry signal.

The Hull Moving Average will be used both to filter for the trend direction and as a trade exit signal. As a trend direction filter, trades will be filtered based on the color of the HMA line, which should agree with the direction of the breakout. As an exit signal, trades are closed as soon as the color of the HMA line reverses.

The 123 Forex Patterns would also be used as a basis to close an open trade if it detects a new congestion zone.

Indicators:

  • 123ForexPatterns
  • Hull-moving-average
    • Period: 50

Preferred Time Frames: 1-hour chart only

Currency Pairs: FX majors, minors and crosses

Trading Sessions: Tokyo, London and New York sessions

Buy Trade Setup

Entry

  • A bullish momentum candle should break above the dodger blue line of the 123 Forex Patterns indicator.
  • The Hull Moving Average line should be green.
  • Enter a buy order on the confirmation of the conditions above.

Stop Loss

  • Set the stop loss on the fractal below the entry candle.

Exit

  • Close the trade as soon as the Hull Moving Average line changes to dark violet.
  • Close the trade as soon as the 123 Forex Patterns indicator plots a new congestion zone.

123 Momentum Breakout Forex Trading Strategy

123 Momentum Breakout Forex Trading Strategy 2

Sell Trade Setup

Entry

  • A bearish momentum candle should break below the orange red line of the 123 Forex Patterns indicator.
  • The Hull Moving Average line should be dark violet.
  • Enter a sell order on the confirmation of the conditions above.

Stop Loss

  • Set the stop loss on the fractal above the entry candle.

Exit

  • Close the trade as soon as the Hull Moving Average line changes to green.
  • Close the trade as soon as the 123 Forex Patterns indicator plots a new congestion zone.

123 Momentum Breakout Forex Trading Strategy 3

123 Momentum Breakout Forex Trading Strategy 4

Conclusion

This trading strategy is a high yield type of trading strategy. It produces trades that have the potential to earn more than three times the risk place on the stop loss.

Trading this strategy requires that the trader understands price action and could anticipate the shifts in momentum based on how the candles behave. Traders who could grasp this could easily make money from the market using this type of strategy.

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