What are the pros and cons of using momentum trading strategy?

I have been a market technician for almost 7 years, out of which 5 years I have used momentum daily. And yes, I must say that although momentum indicators are still lagging indicators, like almost all indicators, spotting divergences between momentum and price action has been something I've always relied on. If you're unsure whether the current trend will continue, or if a retracement/reversal is due, simply look at momentum behavior. I am not saying it is the holy grail, because there is none. You will still need a lot of time studying momentum and learning how to understand its signals across various timeframes, as well as knowing when momentum is subject to false signals, but I believe it is hard work that is 100% worthwhile.

This is a very good summary of the pros and cons of momentum trading. To be successful in momentum trading you need to be able to identify those stocks making momentum moves real time and execute precise entry and exit strategies. Our company, Momentum Trading HQ offers a proprietary scan alert service for momentum traders. We also provide consulting services to assist with indicator selection, as well as entry and exit strategies.

Pros: 1. Momentum trading capitalizes on trends, potentially yielding high returns in a short period. 2. It's straightforward, relying on price movements rather than complex analysis. 3. Momentum can persist, allowing traders to ride profitable waves. Cons: 1. Momentum is unpredictable, leading to significant losses if trends reverse suddenly. 2. It requires discipline to enter and exit positions at the right time. 3. Over-reliance on momentum can neglect fundamental analysis, increasing risk.

Trading momentum has the beauty of trading the NOW, not tomorrow, next week, next year - NOW. Therefore you need to adapt to current sentiment by identifying this sessions strong v weak currency pair and being decisive enough to take action should all your rules align. Far too many traders waste time analysing monthly charts to then brake their rules and dive on a 5 minute chart which had no relevance to the years they were wasting time studying!

Momentum is the holy grail of the profitable trading because Momentum leads the price and it is the ONLY leading indicator to anticipate the price ahead. There so many tools to measure the Momentum even naked eyes can see the momentum on the price chart. the key is how to use momentum and lack of momentum in you trading.

Another drawback I encountered in my simulation is that the momentum strategy does not work well in a downward-trending market.

You need to accept being wrong and not hold trades praying for the best. If momentum changes then adapt and be confident in accepting a small loss and re analysing where the market sentiment is.

I am a trend follower seeking large moves on higher timeframes - monthly, weekly and daily. It is an approach that tops performance tables. Pros: - Minimal screen time with good weekend preparation - Larger ROI - Accelerate growth through compounding Challenges: - Patience needed for assets to come good - Pullbacks require mental fortitude Those who give the process time are handsomely rewarded.

The key is identifying your relative strong & weak currencies during each trading session. I start with the Dollar Index, should there be a clear move ie AUDUSD in a uptrend I will then look across the board for price action showcasing AUD strength on all cross pairs.