Momo Trade Failure

As you can see, the Five Minute Momo Trade is an extremely powerful strategy to capture momentum-based reversal moves. However, it does not always work and it is important to explore an example of where it fails and to understand why this happens.

Figure 5: Five-Minute Momo Trade, EUR/CHF Source: FXtrek Intellichart

The final example of the Five Minute Momo Trade is EUR/CHF on March 21, 2006. In Figure 5, the price crosses below the 20-period EMA and we wait for 20 minutes for the MACD histogram to move into negative territory, putting our entry order at 1.5711. We place our stop at the 20-EMA plus 20 pips or 1.5721 + 20 = 1.5741. Our first target is the entry price minus the amount risked or 1.5711 - (1.5741-1.5711) = 1.5681. The price trades down to a low of 1.5696, which is not low enough to reach our trigger. It

then proceeds to reverse course, eventually hitting our stop, causing a total trade loss of 30 pips.

When trading the Five Minute Momo strategy the most important thing to be wary of is trading ranges that are too tight or too wide. In quiet trading hours where the price simply fluctuates around the 20-EMA, the MACD histogram may flip back and forth causing many false signals. Alternatively, if this strategy is implemented in a currency paid with a trading range that is too wide, the stop might be hit before the target is

triggered.

Conclusion

The Five-Minute Momo Trade allows traders to profit on short bursts of momentum, while also providing the solid exit rules required to protect profits.