The vital role of momentum in trading Momentum is a vital element that lives with all people in everyday life and I’m sure that everyone experienced the impact of momentum in his/her own life , Momentum can affect us in many ways because it keeps us moving in our way achieving goals with constant speed .

The definition of momentum.

It’s the force or speed of movement of the price, object or events resulted of initial influx of energized action taken by large number of people , price or object moving constantly in one direction maintaining velocity . To illustrate the momentum further I’m going to explain it scientifically using physics ““A body in motion stays in motion and a body at rest stays at rest.” There is no better example to explain what is the momentum and its significant effect on our life than the Newton’s first law and maybe you heard the sentence ““A body in motion stays in motion and a body at rest stays at rest.” The interpretation of the law is very logic and straight forward is that it takes a lot of force to move a body in a still position but once the body moves it get easier to keep moving smoothly and constantly in its direction. That means if an object is in calm state and there is no driving force to get it moving, it will stay at this state and you will face difficulty to move it, but once you managed to move it with initial pushing force it would keep moving and accelerate n the same direction maintaining its velocity . From the above explanation we can understand how momentum works physically, and that raises the following question ; Is the Momentum laws can be applied to other aspects and fields in our life? Momentum laws as it applied in physics, it works in financial markets trading , sports, sales, in economics news, and all activities we are doing in our life. Now I’m going to take athletics as an example on how momentum works.

Illustration of Momentum effect on sports
in the world of sports and specifically in athletics ,the momentum works the same as it in physics , there are teams that facing losing streaks and ongoing defeats time after time ,they might win a game or two or even changing coaching staff but they never achieve any positive results and remain at a standstill , no matter how much efforts they do because their body not in motion and there is no velocity or enthusiasm , as a result ,no wins. on the contrary there are teams that their body become in great harmony and have a strong chemistry that is perfect they are in harmony, enthusiastic and organized and everything goes their way , win after win gaining velocity and the momentum of winning streaks, once the ball rolls, no one can stop it

Applying the Momentum laws on Forex Market:

What has been mentioned above teaches us valuable lessons on how Momentum works in Forex market, and taking advantage of the momentum concept to make profits and succeed as Traders in Forex market.
here is the definition of Momentum as the speed of movements and acceleration of price in one direction as a result of the influx of traders that lining up to open orders whether buying or selling or as a result of the accumulation of conditional orders that are xecuted in one direction buying or selling .that means if the majority or traders in the market decided to buy ,the market will gain upside momentum and velocity which keeps the price accelerates which keeps the buying power gaining Momentum and that will create an opportunity for traders to go long and make profit buying with the Momenttum , on the contrary if the majority of traders in the Market decided to sell the currency , we will see acceleration in e selling power and as a result a sell-off occur ,which keeps the Market gaining downside momentum to give an opportunity for traders to go short and make profit out of the downside momentum.

Momentum trading styles.

Momentum trading is divided into two main categories:
Technical momentum trading and fundamental momentum trading : technical momentum style is based entirely on the speed and acceleration the price moving in one direction with sustainable force due to increasing in market liquidity with high volume using technical indicators not only to identify the presence of momentum in the markets but also to confirm the Momentum trading signals to filtrate the bad and fake signals and only take the momentum trades of high quality and reliability.

  • What tools and tactics do traders use to trade using technical momentum?
The first category of tools are the momentum technical indicators which include the average directional movement index (ADX), MACD HISTOGRAM, the volume as indicator he resistance and support levels and timing. the second category is fundamental based momentum trading which depends on the macro economics and news releases that create high increase in volume and liquidity so the pairs move in one direction with force as a result traders place their trades based on the price acceleration resulted of news releases monetize on price acceleration resulted of micro economics and fundamentals

The elements of success in momentum trading

1- Be focused and cautious: Momentum traders must be focused and careful watching the market and be ready to open momentum trade when the markets generate signals in a lightning fast manner so they avoid getting in the trade too late or too early.
  • 2- Keep a daily watch list: Momentum traders must have a watch list of the currency pairs so they know what is the potential of accelerated movement and what are the upcoming economic releases of any given currency.
  • 3- take action :momentum traders are different type of traders because they depend on the accelerated momentum of the currency pairs so when they see the momentum opportunity ,they must take action quickly not hesitating to place trades or feel any fear
  • 4- Trade at the right time: this is definitely the most important element to succeed as momentum trader, is that you have to pick the right time to trade, so you don’t trade in low volume times and times before major economic releases.
  • 5- be conservative : traders must not be afraid to take losses at the right time when the trade goes against them , get out quickly ,that will be on your best interest to limit your loss especially in momentum trading style which depends on accelerated momentum trades , so cut loss and get out before it’s too late.
  • 6- confirm momentum signals ; momentum trading is all about momentum and its presence in the market ,so you have to use the proper tools to help you identify such momentum trading opportunities such as (ADX, MACD HISTOGRM,MOMENUM INDICATOR , STOCHASTIC OCCILAOR
  • 7- watch resistance and support levels ; you have to pay special attention to these levels because the price is always respect the resistance and support levels and any momentum trading must set the take profit before these levels with enough pips to avoid rebounding and letting your profitable trades to be losing one due to rebounding off resistance or support levels.

Conclusion: Momentum trading is very powerful trading style if the traders use it in the right way with discipline and focus, besides the right psychological state to adhere to the momentum trading rules such as placing hard stop losses orders, take profits and avoid greed and fear. I wish you all happy and successful momentum trading . thanks
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