MomentumTrading When Trading In The Futures Market
The futures traders look to either trade with the broad momentum in the market or trade against it. There are pros and cons of each move and thus you need to understand both the approaches and whether they can be your style of trading. The technical indicators are used to spot these momentum trades and one need to know the specifics of how to use them. Also makes sure that you read the Crypto Code scam.
Pros and cons of momentum trading
There are some interesting features when it comes to momentum trading. There are advantages when one is taking positions in the same direction as what the other traders are doing. So, if the majority of the future traders are bullish on a particular asset and are buying it then it makes sense to be a buyer as well and follow the momentum trade. If the majority of the future traders are shorting the asset then it pays to be a seller on the asset. When trading in the direction of the momentum it benefits because the chances of the price reversing are low.
However, there is a downside to this as well. The future market will not continue to move in the same direction forever. There will come a time when the momentum will start to slow down and the price will start to reverse. And those who were late in catching the momentum and ended up buying too high in an uptrend or selling too low in a downtrend get caught on a loss-making position.
The momentum indicators
The technical traders make use of the momentum indicators to place trades in the market. These indicators let them know whether the momentum is still strong or is likely to wane out. If the momentum is seen to come to an end then a trade position should not be taken. The popular momentum indicators used are the stochastic and the rate of change or ROC indicator.
Using the momentum indicators
The momentum indicators are used to measure the rate at which the price of the asset is rising or falling in a particular period of time. The price momentum will reach an extreme point before it starts to reverse. Once the momentum indicator reaches the extreme levels then this is the time when you should not be trading with the momentum. In fact, at this time no position should be taken on the asset. It is important to spot the trade when the momentum is building up. This is when the momentum indicator is just above or below the middle point.