Most traders prefer to try and catch a turning point in the market; most are not comfortable buying at high levels or selling at low levels. Ironically, these are the areas that have a high probability of trading success.
Momentum trading is a style of trading which focuses on currency pairs that are moving significantly in a particular direction with high liquidity.
Wikipedia defines momentum as "prices continuing to trend".
Webster's dictionary defines momentum as " the strength or force gained by motion or through the development of events".
So essentially, momentum refers to rapid movement or speed. In the same vein, momentum traders are traders looking for currency markets that are showing swift movements in price; and they take positions in the direction of the trend, with the hope that the momentum will continue in the trend direction.
There are two groups of momentum traders;
- There are those who trade using indicators that show price momentum