Forex traders may choose from dozens of strategies. Careful planning and the right techniques allow them to rake in profits in the gigantic financial market. Adherents of the technical approach rely on indicators and different timeframes on price charts. They focus on patterns which reappear. Momentum helps them make informed decisions.
Momentum strategies are based on a specific set of indicators. These are highly efficient. Discover what is momentum trading today, and integrate it into your system for accurate prediction. Here are the key principles behind the concept.
Definition of Momentum
This term was coined by Isaac Newton, as he used it for his first law of motion. The premise includes the following.
Any object in motion will stay this way until it is affected by an external force.
Concerning the FX market, it means that once a movement starts, it tends to continue rather than reverse.
Hence, momentum trading is similar to trend trading. Application of the momentum indicator is logical and feasible, even though it goes against the efficient market hypothesis.
Traders suppose that a currency pair which is going up should continue going higher. Based on the core principle, unexpected drops are much less likely. The same concerns decline — it is likely to continue.
Traders then look at momentum to see when they should buy or sell. Positive momentum means the instrument is likely to bring positive returns soon. Negative momentum shows that the movement is getting weaker. Generally, momentum strategies are mostly favoured by swing traders who take the long view.
Why Is It Effective?
So, why does momentum trading work? When prices are on the rise, more bulls, or buyers, participate in the market action. On the other hand, falling rates appeal to bears or sellers. The best momentum strategy lasts until the momentum vanishes.
Forex software includes a range of momentum indicators. One of the best ones is the William %R indicator — it is particularly helpful for day traders. The tool allowed creator Larry Williams to achieve great success and a spectacular million-dollar profit.
The indicator should be used with 40 periods, and it runs on a scale from -100 to 0. A momentum value close to 100 shows that the instrument is oversold. From this, you should deduce that bulls are going to take over the market shortly. Anything closer to zero shows that the asset is overbought, so it is time to sell it. The market is about to turn bearish.
Integrate Momentum in Your Strategy
Learn more about market momentum and leverage it. The strategy based on the William %R indicator is popular with traders around the world. However, there are other techniques related to momentum. These strategies may be used from 9:30 am till 4 pm.
Support Our Journalism
We cannot do without you.. your contribution supports unbiased journalism
IBNS is not driven by any ism- not wokeism, not racism, not skewed secularism, not hyper right-wing or left liberal ideals, nor by any hardline religious beliefs or hyper nationalism. We want to serve you good old objective news, as they are. We do not judge or preach. We let people decide for themselves. We only try to present factual and well-sourced news.
