The foreign exchange is one of the most popular and global form of trading and investment vehicle. Through time, the investment for this platform is no longer limited to mere exchange or trading of currencies. Instead, it has emerged to more instruments like financial spread betting. Hence, people can now engage into forex market using the spread betting platform. However, the tactics for this market could be slightly different from what is traditionally known as spread betting strategies. One example of this is momentum trading.
What is momentum trading?
As the name suggests, it has something to do with momentum. In other words, what this means is that traders follow the market trading. Since the forex market is bigger than the traders as individuals, the application of this strategy should be concerned of the bigger picture. Hence, this only shows that this strategy is long-term kind of strategy that allows traders to capitalise on various major events and even announcements that will surely have a great effect on the currency that is currently being traded.
Essentially, what this strategy simply means is that traders have to look for momentum in order to determine the time and manner that they are going to execute a position. However, it must be noted that it is not the short-term picture of the price movements. Rather, traders should be looking into the wider price trend, which will then require more technical analyses. For example, it should be done by taking the price points in several months and then look into how they are performing. From there, what traders need to do is to choose a spread that they think would be highly profitable in the coming days.
Who should do it?
Definitely, this kind of spread betting strategy is not for the day traders or those who only want to make money in the short-run. Instead, momentum trading is for those traders who have a slightly long-term outlook. This is because day traders only look into the events that happen today. However, long-term traders are looking into a perspective, which is a bigger picture in order to make money. Hence, they are more interested to know the trends that are happening in the past weeks or even months. This opens more windows for greater earnings compared to the level of profits that can be gained in day trading.
What is the catch?
Of course, like any other spread betting strategies, this momentum trading may also have some downfalls too. Being a long-term type of strategy, this means that the position will have more exposure to market risks. This is a disadvantage because it may take things out of control for the trader. It is in this light that more careful decisions should be observed.