Momentum strategy

Momentum trading strategies focus on capturing longer term moves in stocks that are already trending. They believe that because price is moving strongly in a given direction it will continue to move in that direction until the trend loses strength. Momentum traders enter trades at more extreme price points where price action proves that the trend is continuing - they look for new high price points (often supported by other technical indicators) to get on board to ride the existing trend.

Momentum strategies can include:

• breaks to new highs
• measuring strength of moves

Trades can be taken from daily or weekly charts. The following is an example of a momentum trade:

(chart coming soon)

Momentum strategies might suit people who:

• don't have a problem at entering trades at price high points
• have the capacity to 'pull the trigger' as soon as they get an entry trigger
• don't mind having wide stops to give the trend space to continue
• enjoy using technical analysis tools such as fibonacci and have the time to backtest their strategies

Let's take a closer look at a possible momentum trading strategy and how to develop a trading plan to capture these trades.