Momentum Trading in the Forex Markets

Filed under: Learn Forex Trading |

When trading the forex markets, you can either trade with the current momentum or against it (also known as contrarian trading). For beginners, it is advisable to only trade with the current market momentum until you have the advanced skills necessary to trade against that momentum.

 

So what is momentum? It is like a snowball picking up speed as it rolls down a mountain. You can spot it when a couple of moving average cross over and begin to diverge even further apart. It can be confirmed when a previous area of strong support/resistance is broken without any hesitation in the market. These are areas where you can wait for price action signals and hop on to that momentum.

 

The aim of momentum trading is to hop on to a trend that is picking up steam, and to ride some of that trend before exiting. We are not in for the whole train ride, so to speak, but rather, we just want to go a couple of stops.

 

It is much easier to go with momentum than against it. Trading against the current momentum is like swimming against the tide. It is so much easier to go with the flow, and this will give you a higher chance of success.

 

When I first started out trading forex, I was almost always trading against the current momentum for some reason. I was trying to spot market turns using price action signals; and although this was successful to a point because of the high probability price action setups that I was using at areas of support and resistance, it was difficult and my success rate was relatively low. Since then, I now favour a breakout strategy that is going with the trend, or a slight retrace into an area of support/resistance. Trading with the current momentum is so much easier.

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