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In currency trading the direction of the trend is important but if you want to know if a trend is going to carry on or reverse you need to look at price velocity and shifts in momentum – if you do you can make huge gains.
For example, a price maybe tending up - but if its speed of increase is declining, then you could have an advance warning of a price reversal.
Most traders don’t bother looking at price momentum or velocity - but if you do you will have a huge advantage, by being able to stay with the strongest trends and getting advance warnings of reversals. .
Fact:
If you study price momentum, you will increase the odds of success dramatically and any trader should look at momentum and velocity.
Confirming Trends
When entering a trade for example it’s not enough to just have a price break a level of resistance it needs to do so with rising momentum.
On the other hand, if you think a price is going to reverse into resistance you need to watch price velocity and momentum turn and go the opposite way before executing your signal.
Not only do you have the trend on your side, you also have price momentum and that’s a huge advantage to have.
If you don’t know anything about momentum indicators then its time to learn and make it an essential part of your forex education.
If you want three great ones to stat with then look at:
The Stochastic, The Relative Strength Index (RSI) and Average Directional Movement (ADX) We don’t have time to cover these individually here but if look up our other articles you will see all the advantages of utilizing them in your forex trading strategy.
Long Term Fundamentals + Investor Psychology = Price Movement
Markets are driven by the long term fundamentals - but humans will spike prices up or down too far in either direction, as they respond to the emotions - of greed and fear.
When you have a rising price trend and falling momentum it means the buying is coming to an end and a recoil is likely.
In forex trading you need to keep in mind that:
Markets will wrong foot anyone who tries to follow a trend via a trend line or moving average and that’s why the pro traders get advance warnings of declines and rises in price, by looking and acting on momentum.
Increasing The Odds
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