What is a Momentum Breakout Strategy?

What is a Momentum Breakout Strategy?

Jul 28 • Forex Trading Articles • 789 Views • Comments Off on What is a Momentum Breakout Strategy?

Do you know what momentum breakout strategy is all about and how it helps you in your forex trading? Defining the term momentum investing is a trading strategy which most investors follow for buying securities that are rising. Then, they will, later on, sell them to gain more profits.

The main purpose of the momentum breakout strategy is to start working with volatility by looking into some buying opportunities within short-term uptrends. Traders will, later on, sell those securities once the momentum starts to lose. Then, earned cash will be used to look for some more buying opportunities, and the process will repeat itself.

Experienced traders have complete knowledge about when they should enter any position and how long they should hold it. They even know when to exit and when to react over short-term or selloffs.

Elements of momentum trading

Trading in momentum markets will require some decent risk management rules for addressing overcrowding, volatility, or even the hidden traps that reduce the profits. Unfortunately, most market professionals often ignore these basic rules, which can cause a huge loss to them in the future. These major rules can easily be categorized into five basic elements discussed below:

  • Selection of instruments you pick
  • High risk involved during opening or closing of trades
  • Moving into early trades
  • Position management couples will widespread and step into your holding period
  • All exit points will require the consistent charting

Pros

  • Need one hour per day time investment
  • Works great during the crisis
  • No need to use tools or fancy indicators

Cons

  • A longer period of drawdown
  • Need a decent capital

This momentum breakout strategy is suitable for all those who wish to trade part-time. But if you are not ready to invest a large capital, then move on to any other strategy.

Is it profitable?

This whole process of momentum investing is helpful for the investors, but it might not work for a few. Being an individual investor, performing momentum investing might lead to some overall portfolio losses. Once you purchase any rising stock or even sell any falling stock, you are merely reacting to the older news of those professionals who were the head of the momentum investing funds. They will probably get out and leave you in the hands of unlucky folks holding the bag.

Bottom line

Although momentum breakout strategy is not helpful for everyone, it can show some impressive returns if handled properly. However, you need to follow some basic rules and principles to conduct such sort of trading. Hence, you need to be careful about the entry and exit points to get an idea about how you can trade your different funds and exhibit strength.

The commission is one such factor that has made this trading strategy to be impractical for some traders. But as the trading market is developing, this whole strategy is evolving with some rapid changes to drive the traders towards this trading cycle.

Comments are closed.

« »