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What is MOMENTUM TRADER? What does MOMENTUM TRADER mean? MOMENTUM TRADER meaning – MOMENTUM TRADER definition – MOMENTUM TRADER explanation.
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Source: Wikipedia.org article, adapted under https://creativecommons.org/licenses/by-sa/3.0/ license.
Momentum trader is a term for a day trader who uses a strategy based on trying to predict the trends in market prices. There are two types: An event-based momentum trader is a day trader who makes trading decisions based on market volatility resulting from news or incidents happening in the course of a trading day. A technicals-based momentum trader is a day trader who makes trading decisions based on the market being perceived by the trader as being higher or lower than expected. Momentum signals (e.g., the 52-week high) have been shown to be used by financial analysts in their buy and sell recommendations.
When the news breaks out, the market will usually become very volatile. The markets for affected stocks and other financial instruments generally swing a lot starting the moment the news comes out and potentially lasting for a few hours. During this time momentum traders try to make money making very rapid trades based on the values of those financial instruments fluctuating wildly. They need lightning fast execution to enable them to grasp these opportunities; the difference between success or failure may be determined in just a second. A delay of seconds to minutes, as is common in traditional online trading, would therefore not be acceptable to such traders.
Technical analysis is the prediction by a day trader of a certain financial instrument being temporarily:
higher than it should be, in which case the day trader can make money by shorting now and buying later;
lower than it should be, in which case the day trader can make money by buying now and shorting later.
Momentum Trading Meaning, What is MOMENTUM TRADER? What does MOMENTUM TRADER mean? MOMENTUM TRADER meaning.
Momentum in financing is based on the adhering to crucial factors:
Volume:
Volume is the amount of a certain asset that is traded within an offered amount of time. Volume is not the variety of transactions, yet the variety of properties traded– so, if five buyers purchase one asset each, it looks the same as if one purchaser acquisitions five of the asset.
Volume is important to Momentum traders, as they need to be able to go into and exit placements quickly, which relies on there being a stable stream of buyers and sellers on the market. If a market has a high variety of buyers and sellers, it is known as a liquid market as it is simpler to trade an asset for cash. Whereas if a market has a reduced variety of buyers and sellers, it is considered as illiquid.
Volatility:
Volatility is The Momentum traders’ support. Volatility is the level of modification in an asset’s cost– if a market is extremely unstable, it implies that there are big cost swings, while a market with reduced volatility is comparatively stable.
Momentum traders will seek out unstable markets, in order to make the most of short-term fluctuates in an asset’s worth. As Momentum trading efforts to capitalise on volatility, it is essential to have an ideal threat administration strategy in position to protect your professions from negative market motions. This should include stops and limits.
Timespan:
Momentum trading techniques are generally focused on short-term market motions, yet the period of a profession can rely on how much time the fad maintains its toughness. This can make appropriates for traders that use longer-term styles such as placement trading, as well as those that prefer short-term styles, such as day trading and scalping.
Just how to begin Momentum trading
Identify the asset you have an interest in
Design The Momentum trading strategy based on technical indications and analysis
Practise trading in a risk-free setting using an IG trial account
Begin trading on live markets by opening up an account with IG
Alternatively, you can discover more concerning trading techniques and indications with IG Academy’s range of online courses.
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