Momentum Trading

Ride the wave of strong trends by identifying and trading market momentum

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Arbitrage Strategies

Understanding Momentum Trading

Momentum trading is based on a simple principle: assets that are rising strongly tend to keep rising, and assets falling strongly tend to keep falling. Rather than buying low and selling high, momentum traders buy high and sell higher, riding the wave of strong trends.

Core Momentum Principles

📈Trend is Your Friend - Don't fight the tape, trade in the direction of momentum

Strength Begets Strength - Strong moves attract more buyers, creating self-reinforcing trends

🎯Cut Losers Fast - When momentum breaks, exit immediately to preserve capital

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Ride the Wave

Enter when momentum confirms, exit when it fades

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Time Frame Matters

Works on all timeframes from minutes to months

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High Win Rate

Strong trends offer favorable risk-reward setups

💡 Classic Example: Tesla's 2020 Run

• Jan 2020: TSLA breaks out at $100 with strong volume

• Momentum traders enter on breakout confirmation

• Stock continues to $500+ over 6 months (5x gain)

• Key: Staying in the trend despite pullbacks

✓ When to Use Momentum

  • • Strong trending markets (bull or bear)
  • • Clear directional moves with volume
  • • Breakouts from consolidation patterns
  • • Earnings momentum or news catalysts

✗ When to Avoid

  • • Choppy, range-bound markets
  • • Low volume environments
  • • End of extended moves (exhaustion)
  • • High volatility with no clear direction
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The Momentum Trap
Buying at the peak when everyone else is euphoric is the biggest risk. Use indicators to confirm momentum is building, not exhausted. Wait for pullbacks within uptrends rather than chasing vertical moves.