This article looks at the use of momentum trading on the forex live market.
Momentum trading is one of the ways that you will be able to trade on the forex live market. When you look at this kind of trading you should consider what you need to complete this. You also need to consider what momentum trading is and how it affects what you do on the market. There are also some pitfalls that you should consider which come with the use of momentum trading. If you do not understand all of the aspects of momentum trading on the forex live market you will not be able to trade correctly.
What is Momentum Trading?
Momentum trading is a medium and long-term trading strategy where you are going to be looking for a directional movement on the market that is completed with high volume. The length of time that you hold onto the trade will vary depending on how long the movement momentum holds for. It is important that you not confuse momentum trading with trend trading even though they are very similar.
Technical and Fundamental Traders
It is possible to complete momentum trading technically and fundamentally. The way that you complete this will be similar, but the analysis that you complete will be different for each method. When you trade technically you are going to be looking for consistently higher highs on the market. This will be confirmed with the use of a momentum indicator. When you use the momentum indicator you are going to see whether or not there is enough momentum to trade on.
When fundamental trading, you are going to look for a high impact news event. The high impact news events will generally offer you a trend reaction that has more momentum behind it. Of course, when you look at the market fundamentally you will need to verify what you see technically. It is impossible to trade on momentum fundamentally without determining if there is enough momentum technically.
The Pitfalls of Momentum Forex Live Trading
There are a number of pitfalls that you can face when you look at momentum trading. The first is that you could jump into the movement too soon. This generally occurs when you do not wait for the verification of the momentum behind the movement. This could lead to your stop loss orders being triggered before the trade makes a profit.
The second pitfall that you will find is that you do not close the trade at the right time. When you do not close the trade at the right time you are going to hold onto it until it starts to lose some of the profit that it has made. When this happens your winning trade could turn into a losing trade which is something that you should avoid at all costs.
The last pitfall that you can face comes with the riding of the momentum. It is possible that the momentum that you are riding turns against you. When this happens the turn will generally be sudden and sharp. If you do not react quickly you will lose a lot of money on the market.