Riding Forex Momentum for Winning Forex Trades

By: Jason Fielder

Momentum is one of the major factors for professional Forex traders in deciding when to enter and exit the market. Momentum in the Forex market is the same basic concept as momentum in the real world: it's the perceived strength of a movement, whether that's upward or downward.

A great allegorical example of this is in the pro sports world. Take for an example two NFL football teams. Suppose you have two separate 10-6 football teams that look even on paper, but one team has lost 3 of their last 4, while the other team has won 7 straight games.

So which team would you bet on? If your answer wasn't the one professional NFL team that won 7 straight, don't get into sports gambling. The two teams may both be the same on the surface, but one team is definitely hot while the other team is very cold.

What's the difference between the two? They're both 10-6 commodities, but one appears strong RIGHT NOW! The other looks like it was strong, but is now extremely weak.

The Forex is a particularly fluid market, which can make momentum all the more important. What a Forex currency pair is doing now, at this very moment, gives you some information on how that currency pair is doing and how it should be perceived.

Momentum is very much taken into consideration by technical traders, many of whom believe that momentum can be as accurate an indicator of a currency pair as the actual price itself. Many different indicators are designed to help a Forex trader detect patterns of momentum.

For Forex traders, there are several ways to measure momentum using technical analysis, and often this is where you will see moving averages and other technical tools. Technical analysis is meant to find the momentum because once you can see where the market's force is pushing, you know where to make your entry and how to watch out for your exit.

This isn't anything complicated. Momentum is the same concept whether you're making a bet with a buddy on tonight's football game, or the big stack at a poker table bullying everyone around after two monster hands. Momentum affects everything, and the Forex market is no exception.

Understanding the importance of momentum the same way that professional Forex traders do is one of the most important steps to raking in the profits on your own trades.

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