Momentum Divergence Trading

What Do We Trade?

You can trade all the pairs you want. It is possible to trade other instruments such as futures and stock, but there are some tweaks that would have to be made to the strategy, so we

shall not cover these here – we will stick to Forex only.

When to Trade

You can trade with this strategy 24 hours/5 days a week.

When to NOT Trade

We are not recommending to trade during major announcements or news stories, such as those that might affect markets across the globe. We wait a few minutes after the announcement, and if the market is going the same direction we planned earlier, we will then enter the trade.

Which Timeframes Do We Trade?

We strongly recommend sticking to the daily or four-hour time frames only. Although you can trade in any time frame, such as is used for scalping, but we still use it only in daily or four-hour time frames, as that works best.

What Tools Do I Need To Trade?

Momentum Power Strategy only requires a basic charting package.

We use Momentum (7) for daily and 4H timeframes and Momentum (5) for 15M and 30M timeframes.

The Strategy

Simple: look for technical divergences, where the price goes one

direction and the technical indicators go the opposite direction.

Most of the time you can see a technical divergence before the trend is about to change direction.

We are looking for momentum divergence on price action.

When we find Higher High & Higher Higher High on the chart and at the same time we see a Higher High & Lower Higher High on the momentum, it means we should be prepared to go short.

When we find Lower Low & Lower Lower Low on the chart and at the same time we see a Lower Low & Higher Lower Low on the momentum, it means we should be prepared to go long.

When to Enter the Trade

After we find a divergence between the price and the momentum indicator, we enter the trade when the momentum breaks his lowest/highest point in the divergence range.

Money Management

Where to Set the SL

If we go long, we set the SL 5 pips below the previous lowest low.

If we go short, we set the SL 5 pips above the previous highest high.

What about Trailing Stop?

If we are in long, once the current bar close above the previous candle's high and a new bar has opened, we will move the SL 10 pips below the second last bar low.

If we are in short, once the current bar close below the previous candle's low and a new bar has opened, we will move the SL 10 pips above the second last bar high.

I'm using Fibonacci to set 2-3 profit targets. I will show you how I do that at the example below.

Now let see how we set the TP:

We draw Fibo line from lower low to the higher high (see red dotted arrows) and we will get 3 targets at 161.8, 261.8 and 423.6