Momentum Indicators

[Emanuella]

When using momentum trading strategies in forex trading, traders focus on currencies that move meaningfully in one direction on high volume. They can hold their positions for a few minutes, hours or even the entire length of the trading day depending on how quickly the currency moves and when it changes direction.
I haven't tried this way of trading and am wondering if it ends up lucrative or not.
Is this mostly a day trading tool or can it be used for longer term forex trading?

 

[timsk]

. . . I haven't tried this way of trading and am wondering if it ends up lucrative or not.
Is this mostly a day trading tool or can it be used for longer term forex trading?

Hi Emanuella,
Welcome to T2W.

The first thing to say is that it is traders who are profitable (or lucrative to use your word) rather than the strategies they employ. So, anyone who says that trading momentum strategies in the longer terms isn't profitable - they mean it isn't profitable for them. And visa versa of course.

As to whether or not it's viable and, therefore, a potentially profitable strategy - there's no reason that I can think of why it shouldn't be. You can eyeball an instrument to see when momentum picks up or slows down - or use a variety of technical indicators to measure it for you. This link provides a good overview of the better known ones and how they work: Introduction to Technical Indicators and Oscilators
Tim.

 

[Traderallen]

It would seem to me that trying to use a classic "momentum" strategy would be very difficult in the Forex market. It's hard enough in the futures market or in the stock market where you can quantify price movement with underlying volume. In the Forex market there really is no true volume. That is the volume that you see or receive from your broker or charting service is totally different from what I see. Volume presented in the Forex market depend solely on the supplier of the data feed. Therefore if you see the Eurodollar for example moving up on high-volume I very well could be watching the same move and see average or low volume. Second how would you determine what is a momentum move and what is not for example the euro could easily move hundred pips in seconds, usually at this time the spreads are so wide your more apt to get wiped out that than end with a profitable trade. The Eurodollar could just as easily move up for many days in a row that would be quite a momentum move as well. But that's hindsight how would you determine looking at the hard right edge of the chart if it's going to move up for several days?