There are no ideal indicators for technical analysis. The market is unstable and all sorts of price noise violates the systematic presentation of the indicators with signals. Smoothing is a way of mathematical processing of a time series, whose task is to reduce the impact on the result of random changes. In other words, anti-aliasing is an adjustment in the variable indicator formula, which allows to exclude random events from the result, taking into account only regular situations.
The expediency of smoothing is a subject of controversy among many traders. On the one hand, anti-aliasing reduces the number of spurious signals. On the other hand, smoothing reduces their accuracy.
In this review, we will look at the strategy for the Momentum indicator, which uses a smoothing method. How much this modified version is better than the original tool, we will offer to judge you (and invite you to express your opinion in the comments). And recall that you can also leave an e-mail address in the comments, where we are ready to send you an indicator template for free.
Smoothed Momentum indicator
The Momentum Indicator is a technical tool that measures the amount of price change over a certain period. Calculated as the ratio of the price at the current time to the price N periods ago. Refers to leading indicators. Its disadvantage is the instability of the results due to the fact that the input data tend to change rapidly. Setting a large timeframe does not give the result, therefore, a smoothing element is added to the formula. Anchored Momentum is a modified tool, in the formula of which anti-aliasing with the help of exponential MA is applied.
- Timeframe – M5. At short intervals, the Momentum indicator shows a relatively high efficiency.
- Asset – EUR / USD, GBP / USD.
- Anchored Momentum settings: MomPeriod = 11, SmoothPeriod = 6, Level = 0.1.
Trade is conducted mainly in the morning after an active session begins. The goal is to catch movement after a night flat.
Long position opening condition:
- Trading time: 09.00 – 19.00 Eastern European time.
- In the morning after the night session, the Momentum indicator is in the range from -0.1 to 0.1.
- Almost immediately after the opening of the European session, the candlestick closes above the 0.1 mark.
At the next candle you can open a deal. Stop-loss set at a distance of 10-30 points. At the time of the release of statistics, reporting or news, it is better not to trade, because at this moment the indicator will show distorted data.
A short position is opened on a similar principle with the only difference being that you need to wait for the candle to close below the -0.1 level. In essence, trading is conducted when the Momentum indicator crosses the zero level. Entry points are fairly straightforward, because this strategy is quite suitable for beginners. We test on a demo account and share opinions in the comments!