Momentum: Riding Strong Price Moves
Enters positions when strong directional momentum is detected, riding the wave of aggressive buying or selling.
What is Momentum Trading?
Momentum trading is based on the principle that strong price moves tend to continue in the same direction. Rather than trying to predict reversals, momentum traders jump on existing trends and ride them until they show signs of exhaustion. The crypto market, with its high volatility, offers many momentum trading opportunities.
Key Characteristics
Trend following: Trade in the direction of the move. Volume confirmation: Strong moves should have high volume. Quick entries: Enter when momentum is confirmed. Trailing stops: Let winners run, cut losers quickly. Momentum indicators: RSI, MACD, Rate of Change.
Identifying Momentum
Look for price making new highs or lows with strong volume. Large candles with little wicks indicate strong momentum. Technical indicators like RSI above 70 (bullish) or below 30 (bearish) can confirm momentum, though in strong trends these levels can remain extreme for extended periods. Moving average crossovers and MACD histogram expansion also signal momentum.
Managing Momentum Trades
The key to momentum trading is letting winners run while cutting losers quickly. Use trailing stops that move with price to lock in profits as the move continues. Exit when momentum fades—this could be shown by smaller candles, decreasing volume, or bearish/bullish divergence on indicators. Don't try to pick the exact top or bottom.
Practice Risk-Free
Master these concepts with paper trading before risking real capital.
Start Paper TradingDisclaimer: This article is for educational purposes only and does not constitute financial advice. Trading involves significant risk of loss. Cryptocurrency investments are volatile and high-risk. Always do your own research before making any investment decisions.