Momentum histogram indicator forex
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FX55 FOREX
Lighter Red: Momentum of asset is still negative but increasing and revert to positive momentum. Upgrade to Pinescript v5 from v4 Optimized code. Cheers to the author! You may use it for free, but reuse of this code in a publication is governed by House Rules. You can favorite it to use it on a chart. Disclaimer The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView.
Read more in the Terms of Use. Want to use this script on a chart? The first and most important step is to define a MACD segment. For a long position, a MACD segment is simply the full cycle made by the MACD histogram from the initial breach of the 0 line from the underside to the final collapse through the 0 line from the topside.
For a short, the rules are simply reversed. Figure 1. Having noted the prior high or low in the preceding segment, you can then use that value to construct the model. If the MACD histogram now registers a downward reading whose absolute value exceeds 0. Once the MACD segment is established, you need to measure the value of the highest bar within that segment to record the momentum reference point.
In case of a short, the process is simply reversed. If the case were reversed and the preceding MACD segment were negative, a positive reading in the present segment that would exceed the lowest low of the prior segment would then signal a high probability long. Figure 2. The basic premise is that momentum as signified by the MACD histogram can provide clues to the underlying direction of the market.
Using the assumption that momentum precedes price, the thesis of the setup is simply this: a new swing high in momentum should lead to a new swing high in price, and vice versa. A new momentum swing low or high is usually created when price makes a sudden and violent move in one direction. What precipitates such price action? A belief by either bulls or bears that price at present levels represents inordinate value, and therefore strong profit opportunity.
Typically, these are the early buyers or sellers, and they wouldn't be acting so quickly if they didn't believe that price was going to make a substantive move in that direction. Generally, it pays to follow their lead because this group often represents the "smart money crowd.
Not only will the setup sometimes fail outright by producing false signals, but it can also generate a losing trade even if the signal is accurate. Remember that while momentum indicates a strong presence of trend, it provides no measure of its ultimate potential. In other words, we may be relatively certain of the direction of the move, but not of its amplitude.
As with most trading setups, the successful use of the momentum model is much more a matter of art than science. Looking at Entry Strategies A trader can employ several different entry strategies with the momentum model. The simplest is to take a market long or market short when the model flashes a buy or a sell signal. This may work, but it often forces the trader to enter at the most inopportune time, as the signal is typically produced at the absolute top or bottom of the price burst.
Prices may continue further in the direction of the trade, but it's far more likely that they will retrace and that the trader will have a better entry opportunity if they simply wait. Figure 3 demonstrates one such entry strategy. Figure 3. In that case, some skilled traders will add to their positions—a practice that some traders have jokingly termed "SHADDing" for "short add" or "LADDing" for "long add".
For the novice trader, this can be a very dangerous maneuver—there is a possibility that you could end up adding to a bad trade and, therefore, compounding your losses, which could be disastrous.
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How to use the indicator? Lighter Green: Momentum of asset is still positive but decreasing and can revert to negative momentum. Red: Momentum of asset is negative and increasing. Lighter Red: Momentum of asset is still negative but increasing and revert to positive momentum. Upgrade to Pinescript v5 from v4 Optimized code. Cheers to the author! You may use it for free, but reuse of this code in a publication is governed by House Rules.
You can favorite it to use it on a chart. For a long position, a MACD segment is simply the full cycle made by the MACD histogram from the initial breach of the 0 line from the underside to the final collapse through the 0 line from the topside. For a short, the rules are simply reversed. Figure 1. Having noted the prior high or low in the preceding segment, you can then use that value to construct the model. If the MACD histogram now registers a downward reading whose absolute value exceeds 0.
Once the MACD segment is established, you need to measure the value of the highest bar within that segment to record the momentum reference point. In case of a short, the process is simply reversed. If the case were reversed and the preceding MACD segment were negative, a positive reading in the present segment that would exceed the lowest low of the prior segment would then signal a high probability long.
Figure 2. The basic premise is that momentum as signified by the MACD histogram can provide clues to the underlying direction of the market. Using the assumption that momentum precedes price, the thesis of the setup is simply this: a new swing high in momentum should lead to a new swing high in price, and vice versa.
A new momentum swing low or high is usually created when price makes a sudden and violent move in one direction. What precipitates such price action? A belief by either bulls or bears that price at present levels represents inordinate value, and therefore strong profit opportunity. Typically, these are the early buyers or sellers, and they wouldn't be acting so quickly if they didn't believe that price was going to make a substantive move in that direction.
Generally, it pays to follow their lead because this group often represents the "smart money crowd. Not only will the setup sometimes fail outright by producing false signals, but it can also generate a losing trade even if the signal is accurate. Remember that while momentum indicates a strong presence of trend, it provides no measure of its ultimate potential.
In other words, we may be relatively certain of the direction of the move, but not of its amplitude. As with most trading setups, the successful use of the momentum model is much more a matter of art than science. Looking at Entry Strategies A trader can employ several different entry strategies with the momentum model. The simplest is to take a market long or market short when the model flashes a buy or a sell signal. This may work, but it often forces the trader to enter at the most inopportune time, as the signal is typically produced at the absolute top or bottom of the price burst.
Prices may continue further in the direction of the trade, but it's far more likely that they will retrace and that the trader will have a better entry opportunity if they simply wait. Figure 3 demonstrates one such entry strategy. Figure 3. In that case, some skilled traders will add to their positions—a practice that some traders have jokingly termed "SHADDing" for "short add" or "LADDing" for "long add".
For the novice trader, this can be a very dangerous maneuver—there is a possibility that you could end up adding to a bad trade and, therefore, compounding your losses, which could be disastrous. Experienced traders, however, know how to successfully " fight the tape " if they perceive that price offers a meaningful divergence from momentum.
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