Weekend Reading - Keeping an eye on Momentum

Keep An Eye On Momentum

http://www.investopedia.com/articles/forex/05/MomentumMACD.asp

This article states the obvious yet brings up a simple setup that I never thought about.  The basic premise is that momentum precedes price.  Any momentum indicator can be used but this article uses MACD as an example.

1.    Define a MACD segment.  Segment #1 below.

2.    Measure the highest bar of segment #1.  In the above case, the highest bar was .004.

3.    Wait until the next segment forms; segment #2 above.  If a bar from segment #2 falls below -.004, downward momentum has exceeded previous upward momentum.
Segment #2 consists of 10 bars.  The values are in order from left to right (-.001, -.004, -.006, -.007, -.008, -.008, -.008, -.006, -.002, -.0008)

The third bar from the left is -.006, showing greater momentum than during anytime in segment #1. Sell at the close of this bar (price=1.7579.)  Exit the position at your discretion but a good time to do so might be when momentum slows.  Momentum stalls 2 consecutive bars at bar #7.  MACD value is -.008.  Exit at the close of this bar (price=1.7381)

The profit is close to 200 pips.  Like every other setup, this will not always be successful and should be used in conjunction with other confirmation tools. 

What I like most about this setup is its simplicity.

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