Momentum trading definition
Momentum trading is a strategy that seeks to capitalize on momentum, or the rate at which a security’s price accelerates, whether up or down. The idea is to enter a position as price begins to surge, often with the help of technical indicators and recognized chart patterns.
What is momentum trading strategy?
Momentum trading strategy involves trading a strong breakout accompanied by a spike in volume, which can potentially show a high win rate. There are a variety of chart patterns that can help momentum traders highlight market trends and predict future price movements.
For example, with the ‘cup and handle’ pattern, momentum traders might look for price to shoot up from the lower end of the ‘handle’ and break the previous high. Propelled by high volume, there may be strong potential for price to continue to make new highs.