Momentum Forex Trends - Different Type of Market Technical Analysis

What is a Momentum Trend?

A momentum trend is one that has more momentum than the earlier one, it can be plotted using a much steeper trend line than the one that was in place before. When a new line forms that's more steeper than a previous one we say that the trend has gathered extra strength and becomes much stronger. These types of setups requires a different type of market technical analysis.

In the example below: Also when price is moving upwards within a trading channel, if price breaks the up channel a stronger trend is formed as shown in the diagram below. If as a trader your chart breaks an upwards trendline to the upside in an upward direction moving market like the one below, Do not Try to Sell, Buy More Contracts, Remember this Forex trading tip it can make you a lot of money just like the way it did in the trading analysis below.

Channel Break Upward - More Momentum on Upwards Market Movement

Using the same technical analysis examples above we can also see how the new steeper trend lines were initiated showing the currency was gaining momentum.

This is shown by the steeper trendlines that can be portrayed as the price progresses.

The newly shaped trend has more strength than the previous one as displayed by the forming of the steeper trend line.

This forms trend B and C as illustrated in the illustration below portrayed using the MT4 technical analysis software, The momentum added a new steeper line as plotted on this trading chart.

This is illustrated in the example below by the three lines A, B and C showing formation of stronger trends as the market continues to gather strength.

Price Gaining More Momentum

However, when the steepest trendline is broken then even others trend lines will most likely also be broken too. It's best to take profit once the steep most trendline is broken.

This strategy can also be used by short term forex traders like the day trader or the scalper, this setup will oftenly form on the 5 minute & 15 minute chart. This parabolic trend lines can be used to know where to take profit. A trader should immediately book his profit as soon as the steepest trendline is broken.

How to Trade These

The momentum Forex trend lines are good technical analysis tools for determining where to take a profit early before other traders. This momentum trading setup occurs frequently on 1 minute, 5 minute and 15 minutes charts & therefore suitable for scalpers & day traders. For day trading which is most common? - the best trading chart to use is the 15 mins sometimes 5 mins, For example after entering a short term trade either buy/sell and the market moves some pips in your favor and you identify this pattern then it's best to exit once the steepest trendline is broken and take profit at that point.

Technical Analysis Examples

For this example we shall use short term trading chart of minutes for drawing, when the set-up appeared as below, it was a good point to take profit.

Trading The Momentum Market Moves

In the above example one trading long would have waited until the steepest trendline was broken then closed the trade and taking profit at this place thus making a profit of 42 pips on this buy trade. The trader would have exited the trade at the best time & thus avoiding the choppy forex market that followed.

Parabolic Trends - What is it?

Sometimes a market moves in a parabolic formation, and this is seen when panic buying sets in and prices is pushed vertically. During a parabolic up move, there is almost complete absence of sellers, which forms a vacuum of buying. When this occurs traders scramble to just get into the market regardless of price, in the fear of being left behind. This can make the biggest price movements in the shortest amount of time, traders will set buy trade orders in this setup.

For this type of move it is best to keep opening buy - no need for analysis just keep opening buy.

This trend will last for even months on end even upto 2 years, for this time just keep buying & as long as those weekly and monthly trendlines are holding just keep opening buy and buying.

When a stock or currency moves in this manner, the highest point which is reached often symbolizes end of a move with prices not going back to the ultimate highs again for a very long time. When this point is reached & the most steep most trend line is broken it's best to consider that as a trend market reversal & it is best to take time out off the market and enjoy your profits for a while before calculating **what's your next move.

The same can also happen for a downtrend when there is panic selling and price is also driven vertical. This especially happens during recession.

The steeper a trend line angle, the less dependable it becomes. When the most steep is broken its best to get out of this trade position. The example below is for crude oil that has initiated a parabolic pattern. Another example is gold that formed on the weekly/monthly chart during the period shortly after the steepest line in the crude oil chart was broken.

As a trader if you come across a parabolic trend in an up direction just keep buying & buying some more and you'll more likely to make profits trading this market trend direction, there will be no added technical analysis required just the trendlines. The only thing to remember is to get out once the steepest line is over because the reversal on this setup is very fast you need to also be very fast. Just make sure you exit at the correct point just like in the above example.

For example, the above parabolic movement is of crude oil trading chart, the traders had dominated to drive the price of oil from $70 to $150 over a period of a couple of months and at the top of the market those who call themselves market analysts were so bullish they predicted the price of oil would get to a high of $200, what these analysts did not know this concept a.k.a Vacuum buying, in analysis trading as long as the trend lines held the direction of the market was up, but even after the first steep most trendline was broken the market analysts still kept insisting the price would hit $200, guess what, after the most steep trendline was broken it did not even take two weeks to take the price of oil, back to $50 at one time it was even $35. That is parabolic technical market analysis, now-you-knownow-you're-informed.

Good examples of this setup on trading charts is the week & monthly price charts for Gold and Crude Oil, these charts can be found on MT4 platform depending on your online broker.