Momentum Trading
Ride the wave of strong trends by identifying and trading market momentum
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0 / 5 completedUnderstanding Momentum Trading
Momentum trading is based on a simple principle: assets that are rising strongly tend to keep rising, and assets falling strongly tend to keep falling. Rather than buying low and selling high, momentum traders buy high and sell higher, riding the wave of strong trends.
Core Momentum Principles
📈Trend is Your Friend - Don't fight the tape, trade in the direction of momentum
⚡Strength Begets Strength - Strong moves attract more buyers, creating self-reinforcing trends
🎯Cut Losers Fast - When momentum breaks, exit immediately to preserve capital
Ride the Wave
Enter when momentum confirms, exit when it fades
Time Frame Matters
Works on all timeframes from minutes to months
High Win Rate
Strong trends offer favorable risk-reward setups
💡 Classic Example: Tesla's 2020 Run
• Jan 2020: TSLA breaks out at $100 with strong volume
• Momentum traders enter on breakout confirmation
• Stock continues to $500+ over 6 months (5x gain)
• Key: Staying in the trend despite pullbacks
✓ When to Use Momentum
- • Strong trending markets (bull or bear)
- • Clear directional moves with volume
- • Breakouts from consolidation patterns
- • Earnings momentum or news catalysts
✗ When to Avoid
- • Choppy, range-bound markets
- • Low volume environments
- • End of extended moves (exhaustion)
- • High volatility with no clear direction