Perks of Using Momentum for Trading
Most of the traders don’t understand the difference between the three broad types of trading momentum. Many traders take a look at the momentum indicators considering its actual location. For instance: let’s consider RSI. In case, if RSI is moving rapidly, then it is assumed that momentum is up and even vice-versa is also possible in case moving down, but it is possible only by using momentum in a directional way.
Types of momentum available in trading
When the cost of the trading begin to organise and starts moving in a particular direction, then a good momentum is created, in the sense momentum becomes directional.
- The first and foremost type of momentum that is seen on RSI seems like a continuous speed bump which leads to the stop sign.
- The second type of momentum indicates more than that of the speed bump. In fact, this is more like an instant alert, and the price is in a good position to step back into the trend and also to regain speed.
- The third type of momentum is created during the period of volatility, and it is in an organized manner. Once it is organized, the direction becomes more predictable as that of the timings. This type of momentum occurs when the trading market is entirely flooded with the players.
The third category of momentum is the most important amongst all, as it drives the price than the other two types. None can easily predict the price movements by making use of RSI trading signals. From amateur to advanced traders, everyone can easily learn about the types of trading momentum and this kind of momentum is more predictable when compared to others. Together all these kinds of momentum make profitable trading.
Learn more about Momentum trading in Technical analysis course.