How Trading on Forex Live Momentum Can Burn You

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How Trading on Forex Live Momentum Can Burn You

A lot of new traders consider trading on forex live momentum when they look at the market.  These traders assume that trading on the trend is much easier than any other trading.  While this is true for some traders it is not true for others.  If you are looking at trend trading you have to understand how trading on this momentum can hurt your trading.

Trading on a Volatile Forex Live Market

When you look at the forex live market you have to know that there are times when the market is volatile.  A lot of new traders feel that this is the best time to trade because volatile markets often mean increased liquidity.  However, you may face a problem when you are trading on momentum in a volatile market.  Trends in the market are affected greatly by volatility and not in the best of ways.

When the forex live market is volatile the trends that you are trading on will be more unstable.  The nature of the volatile market is that the trend can change at any time.  This means that you could see a trend, trade on it and lose money when the trend reverses due to the market volatility.

There are some ways that you can protect yourself from this problem.  The best way is to use a trailing stop which exits the market, but allows you to keep some of your profits.  Using momentum indicators is also a good idea as you will be able to determine how stable the trend is.  The more stable the trend the less chance of a sudden reversal.

Swing Trading with Momentum

When you complete swing trading you are making a profit on the trend turns in the market.  This is a medium-term strategy that a lot of people look at.  When you complete this kind of trading you need to be careful with the momentum.  If you are unsure of when the reversal will occur then you can lose a lot of money with this trading.

There are certain tools that a swing trader needs and a momentum indicator is one of the most important.  If you do not keep track of the momentum you are going to be burnt.

Trading on Short-Term Momentum

There are a lot of traders that look at making a profit on short-term momentum.  These traders are generally the ones using short-term trading strategies like scalping and guerrilla trading.  These short-term strategies are able to make small profits off very small momentum movements.  However, it is very easy to be burnt when you use these strategies on short-term movements.

Short-term momentum is harder to calculate and evaluate than longer term momentum.  They are also considered to be more volatile and prone to sudden changes.  The way that you are burnt is through the leverage that is often applied to these trades.  To make the 3 pip profits that you make worth the effort most traders use leverage with short-term trades.  However, the risks involved with short-term trades means that you could lose a lot of money when you complete these trades.

 

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