Momentum investing may not sound easy at first, but it’s basically riding volatility like a wave and jumping off ship before the next wave comes in. Momentum trading is a legitimate Forex Bonus, and you can be one good momentum trader.
However, to do that, you have to remember some important things from security picking to controlling the risk that you expose yourself into.
Let’s first know the main idea behind momentum trading.
What is Momentum Trading?
Simply put, momentum traders take advantage of and use volatility in their favour. They go short in rising stocks and sell them once the earliest solid signs of falling appears. After that, they move the earnings they got to a new position.
In addition, if you’re a momentum trader, you will probably take advantage of ‘investor herding,’ in which you lead the pack into a direction and then be the first one to take money and exit the position.
The following are the things you have to do and remember if you want to become a successful momentum investor.
When you’re picking securities, sometimes it not a good idea to choose leveraged or inversed ETFs. This is because the price swings of these funds do not accurately trace the underlying indexes, as well as futures markets. The reason behind this inaccuracy is the funds’ complex structure. In addition, regular funds also tend to eat away smaller percentage of gains and losses.
What you can instead to is to choose liquid securities. You have to hunt for those that can trade for more than 5 million shares a day. In other words, you have to chase after popular Brokers Review. Or you can also search among low float issues, which can be turned into highly liquid instruments.
How do those last mentioned become highly liquid? When the news build up and attract large market players.
As we have always emphasized, risks are always present in the market, no matter how relatively secure your investment and position are.
You must avoid entering a position too soon or when you haven’t confirmed a clear momentum. You should also not exit a position too late or when it’s already oversaturated. Keep close tabs on the momentum movements, and try as much as possible to not miss trend changes or reversals.
Never ignore any news that could affect the market. Do not keep a position overnight because outside factors can drastically change or reverse prices and price patterns. And lastly, close a bad position right away.
Know when to exit
Knowing when to exit requires as much skill as knowing when to enter. Remember that you must not hold onto a position that no longer has any upside—this is also true for momentum trading.
You have to leave the position once the price moves quickly into an overextended technical state. It’s easy to identify such states on a series of vertical bars on a 60-minute chart.
If you can keep those reminders in mind like lucky charms, it’s possible for you to generate huge amounts of profits. If you have the discipline, stamina, and patience, momentum trading might just be the perfect trading strategy for you.