Momentum trading is one of the most basic of trading strategies. No doubt, you have heard the age-old market phrase, “The trend is your friend”. This phrase is as accurate today as it ever was and will continue to be accurate well into the future.

Trend trading and momentum trading are phrases which are often used interchangeably. If you wanted to differentiate between the two you could state that momentum trading involves not just getting in on the prevailing trend, but entering when the trend demonstrates momentum or acceleration.

You could define momentum or acceleration by using any number of technical analysis techniques. For instance, a channel breakout in the direction of the trend could demonstrate increased momentum. Another example would be the steepening of a trend line. Yet another example would be a close above the upper band or below the lower band of Bollinger bands. Another method that can be quite effective is one that goes hand-in-hand with momentum. That method would be using an increase in volatility as a metric. One way to do this is to look for an increase in volatility as an opportunity to enter a new trade. There a number of methods you could use to measure volatility such is using an increase in the average range or the average true range. Quite naturally you would also want to look into using the momentum indicator to help you visualize increases and decreases in momentum on your price chart.

Momentum trading strategies can be used with any timeframe be it a monthly chart, weekly chart, daily chart, and intraday charts as well. Trading using momentum is frequently used by short-term traders seeking to take advantage of the potential profits in any rapid price increases in the direction of the trend.

Regardless of whether you are a long-term, intermediate term, or short-term trader momentum trading techniques can provide excellent entry signals for your trading. The increased price acceleration in the direction of the prevailing trend can be used as an indicator of confirmation of further price action in the direction of the trend.