Q: In the context of the markets, what exactly is momentum and how can traders benefit from it?
A: You’ve heard that the "trend is your friend." The term
"momentum" describes the strength of a trend or the likelihood that the trend
will continue. Finding a high-momentum market is a great advantage for those who
like to trade in short-term time frames i.e. swing traders and day traders. Here
are couple of approaches that can provide an edge:
-
High ADX. Some traders look for a stocks that have
a ADX reading of 30 or higher. Looking back at history, these stocks tend to
resume their trends after pulling back. -
Stocks trading above their 200-day moving average.
Stocks trading above their 200-day moving average behave differently from
those that are below the their 200-day moving average. Historical research
shows that there is a upward bias for stocks in the U.S. stock market.
Click here for more information about patterns in market that can give
traders an edge.