Momentum Definition. Momentum is a term used to describe the property the price behavior of a stock, commodity or currency to move in a specific direction, either up or down, and to continue moving in that direction. Momentum trading is a strategy that attempts to capitalize on a price trend once it has formed, presuming that momentum will create an opportunity to profit from a short-term move. Momentum indicators have been designed to measure the velocity or rate of price changes, not the actual price level. Commonly referred to be forex traders as oscillators, these indicators consist of the net difference between the current closing price and the oldest closing price from a predetermined period. Typically, the indicator will oscillate about a centerline with upper and lower boundaries acting as signals for overbought and oversold conditions, respectively. Momentum indicators are leading indicators that signal a change in price behavior is imminent. Forex trader favorites are the Reserve Strength Index (“RSI”) and the Commodity Channel Index (“CCI”).
Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.