Momentum Trading

The momentum trading strategy allows individuals to capitalise on accelerating prices of securities, including forex and stocks. If you’re keen to learn how to day trade using momentum, this article explores some key trading strategies for beginners and experts, as well as top software, indicators and tools. We also discuss some comparisons between momentum trading vs swing trading, trend following, and other popular methods.

Momentum Trading Brokers

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Our picks at a glance

1. 1 Pepperstone Top score: Platforms 4.8 Info Visit Pepperstone
2. 2 XTB Top score: Trust 4.8 Info Visit XTB
3. 3 Spreadex Top score: Mobile 4.5 Info Visit Spreadex
4. 4 Interactive Brokers Top score: Trust 4.6 Info Visit Interactive Brokers
5. 5 IG Top score: Fees 4.5 Info Visit IG
6. 6 Trade Nation Top score: Support 4.4 Info Visit Trade Nation
7. 7 Eightcap Top score: Mobile 4.6 Info Visit Eightcap

1. Our top pick

   1

   Pepperstone

   FCA regulatedSpread bettingGBP account

   4.8/5★★★★★

   Founded in Australia in 2010, Pepperstone is a leading forex and CFD broker serving over 830,000 clients globally. It provides access to 1,400+ instruments through MT4, MT5, cTrader and TradingView, with low, transparent pricing. Regulated by the FCA, ASIC and CySEC, Pepperstone offers a secure trading environment for all experience levels.

   Instruments

   CFDs, Forex, Currency Indices, Stocks, Indices, Commodities, ETFs, Crypto CFDs (only Pro clients), Spread Betting

   Regulator

   FCA, ASIC, CySEC, BaFin, DFSA, SCA, SCB, CMA-Kenya

   Platforms

   Pepperstone Trading Platform, MT4, MT5, cTrader, TradingView

   Min. Deposit

   $0

   Min. Trade

   0.01 Lots

   Leverage

   1:30 (Retail - UK, EU, Australia), 1:500 (Pro), 1:200 (Offshore), 1:400 (Kenya)

   Trust

   4.6

   Fees

   4.5

   Platforms

   4.8

   Support

   4.6

   Visit Pepperstone Read review Add to compare

   CFDs and FX are complex instruments and come with a high risk of losing money rapidly due to leverage. 73-89% of retail investor accounts lose money when trading CFDs.

2. 2

   XTB

   FCA regulatedISAGBP account

   4.8/5★★★★★

   Established in Poland in 2002, XTB caters to over a million clients worldwide. This forex and CFD broker offers a robust regulatory framework, a diverse range of assets, and prioritises trader satisfaction. It provides an intuitive proprietary platform equipped with excellent tools to support aspiring traders.

   Instruments

   CFDs on shares, Indices, ETFs, Raw Materials, Forex currencies, cryptocurrencies, Real shares, Real ETFs

   Regulator

   FCA, CySEC, KNF, DFSA, FSC, SCA, CMF, Bappebti

   Platforms

   xStation

   Min. Deposit

   $0

   Min. Trade

   0.01 Lots

   Leverage

   1:30

   Trust

   4.6

   Fees

   3.9

   Platforms

   4.0

   Support

   4.3

   Visit XTB Read review Add to compare

   CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money

3. 3

   Spreadex

   FCA regulatedSpread bettingGBP account

   4.5/5★★★★★

   Spreadex, regulated by the FCA, provides spread betting across 10,000+ CFD instruments, including 60 forex pairs. Traders have the option to engage in short-term positions on sporting events as well. With a history exceeding 20 years, the company has earned numerous accolades.

   Instruments

   Forex, CFDs, Indices, Commodities, Stocks, Crypto, Bonds, Interest Rates, ETFs, Options, Spread Betting

   Regulator

   FCA

   Platforms

   Spreadex Platform, TradingView, AutoChartist

   Min. Deposit

   £0 (but £5 minimum for standard payment methods)

   Min. Trade

   £0.01

   Leverage

   1:30

   Trust

   4.0

   Fees

   4.0

   Platforms

   4.3

   Support

   4.3

   Visit Spreadex Read review Add to compare
4. 4

   Interactive Brokers

   FCA regulatedISAGBP account

   4.6/5★★★★★

   Interactive Brokers (IBKR) stands as a leading brokerage, offering access to 170+ markets in 40 nations alongside extensive investment services. With 40+ years in finance, this Nasdaq-listed entity complies with regulations from the SEC, FCA, CIRO, and SFC, ensuring global trustworthiness in trading.

   Instruments

   Stocks, Options, Futures, Forex, Funds, Bonds, ETFs, Mutual Funds, Cryptocurrencies, CFDs

   Regulator

   SEC, FINRA, CFTC, NFA, CIRO, FCA, CBI, ASIC, SFC, SEBI, JFSA, MAS

   Platforms

   Trader Workstation (TWS), IBKR Desktop, GlobalTrader, Mobile, Client Portal, AlgoTrader, OmniTrader, TradingView, eSignal, TradingCentral, ProRealTime, Quantower

   Min. Deposit

   $0

   Min. Trade

   $1

   Leverage

   1:30

   Trust

   4.7

   Fees

   4.3

   Platforms

   3.9

   Support

   3.0

   Visit Interactive Brokers Read review Add to compare
5. 5

   IG

   FCA regulatedISASpread betting

   4.5/5★★★★★

   Established in 1974, IG is a unit of IG Group Holdings Plc, listed on the LSE as IGG. It provides access to over 17,000 markets through intuitive platforms and apps. For half a century, IG has remained an industry leader, excelling in all vital aspects for traders.

   Instruments

   CFDs (not in US), Forex, Stocks, Indices, Commodities, ETFs, Futures, Options, Crypto, Spread Betting (UK only)

   Regulator

   CFTC, NFA, FCA, BaFin, ASIC, FINMA, MAS, JFSA, FMA, DFSA, BMA, CONSOB

   Platforms

   Web, L2 Dealer, MT4, TradingView, AutoChartist, TradingCentral, ProRealTime

   Min. Deposit

   $0

   Min. Trade

   0.01 Lots

   Leverage

   1:30 (Retail), 1:222 (Pro)

   Trust

   4.4

   Fees

   5.0

   Platforms

   4.8

   Support

   4.5

   Visit IG Read review Add to compare

   Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.

6. 6

   Trade Nation

   FCA regulatedSpread bettingGBP account

   4.4/5★★★★★

   Trade Nation is a leading FX and CFD broker regulated in the UK and Australia, among other places. The company provides competitively priced fixed and variable spreads on over 1,000 assets. Traders benefit from advanced platforms and comprehensive training materials. Additionally, the Signal Centre offers valuable trade ideas.

   Instruments

   CFDs, Forex, Indices, Shares, Commodities, Futures, Bonds, Spread Betting (UK and Ireland only), Cryptos (Bahamas entity only)

   Regulator

   FCA, ASIC, CMVM , FSCA, SCB, FSA

   Platforms

   TN Trader, MT4, TradingView

   Min. Deposit

   $0

   Min. Trade

   0.1 Lots

   Leverage

   1:30

   Trust

   4.3

   Fees

   4.3

   Platforms

   3.9

   Support

   4.9

   Visit Trade Nation Read review Add to compare

   67.3% of retail investor accounts lose money when trading CFDs with this provider.

7. 7

   Eightcap

   FCA regulatedGBP accountTradingView

   4.6/5★★★★★

   Eightcap, an acclaimed broker regulated by the FCA, offers exceptionally low trading costs. Recognised as the top-rated brand by TradingView's vast user base of 100 million, traders can directly access the platform. UK traders can open a live account with a minimum deposit of just £100.

   Instruments

   CFDs in Forex, Stocks, Indices, Commodities

   Regulator

   FCA, ASIC, CySEC, FSC, SCB, FSA

   Platforms

   MT4, MT5, TradingView, TradeLocker

   Min. Deposit

   £100

   Min. Trade

   0.01 Lots

   Leverage

   1:30

   Trust

   4.3

   Fees

   3.8

   Platforms

   4.3

   Support

   4.0

   Visit Eightcap Read review Add to compare

   Services are provided subject to applicable laws and regulations. Certain products, services, instruments, platforms or payment methods may not be available to residents of certain jurisdictions.

Compare

Safety Comparison

Compare how safe the Momentum Trading are and what features they offer to protect traders.

Broker	Trust Rating	FCA Regulated	Negative Balance Protection	Guaranteed Stop Loss	Segregated Accounts
	4.6
	4.6
	4.0
	4.7
	4.4
	4.3
	4.3

Payments Comparison

Compare which popular payment methods the Momentum Trading support and whether they have trading accounts denominated in British Pounds (GBP).

Broker	GBP Account	Debit Card	Credit Card	Neteller	Skrill	Apple Pay

Mobile Trading Comparison

How good are the Momentum Trading at mobile trading using apps or other mobile interfaces.

Broker	Mobile Apps	iOS Rating	Android Rating	Smart Watch App
	iOS & Android	4.4	4.1
	iOS & Android	4.7	4.1
	iOS & Android	4.5	4.5
	iOS & Android	4.3	4.5
	iOS & Android	4.6	4.0
	iOS & Android	4.5	4.5
	iOS & Android	4.8	4.4

Beginners Comparison

Are the Momentum Trading good for beginner traders, that might want an affordable setup to get started, along with good support and educational resources?

Broker	Demo Account	Minimum Deposit	Minimum Trade	Support Rating	Education Rating
		$0	0.01 Lots	4.6	4.0
		$0	0.01 Lots	4.3	3.8
		£0 (but £5 minimum for standard payment methods)	£0.01	4.3	4.0
		$0	$1	3.0	4.3
		$0	0.01 Lots	4.5	4.8
		$0	0.1 Lots	4.9	4.2
		£100	0.01 Lots	4.0	3.5

Advanced Trading Comparison

Do the Momentum Trading offer features that allow for more advanced trading strategies?

Broker	Automated Trading	Pro Account	Leverage	VPS	AI	Low Latency	Extended Hours
	Expert Advisors (EAs) on MetaTrader, cBots on cTrader		1:30 (Retail - UK, EU, Australia), 1:500 (Pro), 1:200 (Offshore), 1:400 (Kenya)
	-		1:30
			1:30
	TWS API		1:30
	Expert Advisors (EAs) on MetaTrader, build your own on ProRealTime		1:30 (Retail), 1:222 (Pro)
	Expert Advisors (EAs) on MetaTrader		1:30
	TradingView Bots		1:30

Detailed Rating Comparison

Use this heatmap to compare our detailed ratings for all of the Momentum Trading.

Broker	Trust	Platforms	Mobile	Assets	Fees	Accounts	Support	Research	Education
	4.6	4.8	4.3	4.6	4.5	4.0	4.6	4.3	4.0
	4.6	4.0	4.4	4.6	3.9	4.0	4.3	4.1	3.8
	4.0	4.3	4.5	4.5	4.0	3.8	4.3	4.3	4.0
	4.7	3.9	4.4	4.7	4.3	3.9	3.0	4.7	4.3
	4.4	4.8	4.3	4.5	5.0	4.0	4.5	4.9	4.8
	4.3	3.9	4.5	3.7	4.3	4.2	4.9	3.9	4.2
	4.3	4.3	4.6	3.6	3.8	4.0	4.0	3.5	3.5

Our Take On Pepperstone

Pepperstone excels in trading with tight spreads, swift execution, and advanced charting for seasoned traders. Beginners enjoy zero minimum deposit, comprehensive educational materials, and outstanding 24/5 support, including 18-hour weekend assistance.

Pros

• Support for top-tier charting platforms such as MT4, MT5, TradingView, and cTrader. These tools accommodate different short-term trading methods, including algorithmic trading.
• Pepperstone offers pre-IPO perpetual futures, adding Anthropic in October 2026, enabling 24/7 speculation on expected share prices through cash-settled CFDs.
• In recent years, Pepperstone has significantly enhanced the deposit and withdrawal process. By 2025, clients can use Apple Pay and Google Pay, while 2024 saw the introduction of PIX and SPEI for customers in Brazil and Mexico.

Cons

• Overnight holding fees exceed those of some Market Maker brokers (typically Benchmark + 2.5%). Pepperstone suits traders and forex scalpers well but is less ideal for swing traders who keep positions open overnight.
• Execution might not appear as dependable in rapid markets as headline speeds imply. Our tests showed swift execution at targeted prices. However, community feedback highlights concerns over slippage, stop-loss fills, and order triggers sensitive to spreads amid volatility.
• Although the market range has expanded, crypto CFD options remain somewhat restricted, especially when compared to specialised brokers like Eightcap. Additionally, there is no facility to invest in actual cryptocurrencies.

Go to Pepperstone Read the full Pepperstone review

73-89% of retail investor accounts lose money when trading CFDs

Our Take On XTB

XTB excels for novice traders with its superb xStation platform, minimal trading costs, no required deposit, and outstanding educational resources, many of which are fully integrated into the platform.

Pros

• In 2026, XTB expanded its asset offerings and markets. It introduced options trading in Spain and Germany, launched spot cryptocurrencies in select regions, and unveiled Investment Plans 2.0. These enhanced plans now feature more pre-built options, including sectors like Defence, a user-friendly interface, and increased flexibility to mix stocks and ETFs within individual plans.
• The xStation platform stands out with its user-friendly design and intuitive tools, such as adaptable news feeds, sentiment heatmaps, and a trader calculator. These features streamline the learning process for new traders.
• XTB offers a superb array of educational resources, such as training videos and articles, embedded within the platform to assist traders of all experience levels.

Cons

• XTB lacks a raw spread account, a feature increasingly offered by competitors such as Pepperstone. This omission might not satisfy traders seeking the most competitive spreads.
• The demo account lasts only four weeks, posing a challenge for traders wanting to fully explore the xStation platform and refine short-term strategies before investing actual money.
• XTB has stopped supporting MT4, restricting traders to its own platform, xStation. This decision may discourage experienced traders accustomed to using the MetaTrader suite.

Go to XTB Read the full XTB review

74% of accounts lose money when trading CFDs with this provider.

Our Take On Spreadex

Spreadex attracts UK traders keen on spread betting in financial markets and traditional sports wagers. It offers low fees for short trades, and spread bet profits are tax-free. With a robust charting platform and no minimum deposit, it's easy to begin.

Pros

• Spreadex has integrated Autochartist-powered trading signals into its desktop platform. This offers real-time, pattern-based insights aimed at assisting active traders in spotting potential opportunities.
• During live trials near London, Spreadex exhibited 120–200ms round-trip latency across over 50 FTSE and EUR/USD trades. There were no requotes, and slippage remained largely controlled under normal market conditions.
• Over 10,000 instruments and superior access to AIM small-caps are available, including exclusive offerings not found with larger brokers. This provides UK-centric traders with enhanced opportunities in niche small-cap configurations.

Cons

• Spreadex requires real funds initially, offering no demo accounts. Few spread betting brokers neglect to accommodate new traders in this manner.
• CFDs, financial spread bets, sports, and casino activities are combined in one account balance. For serious traders, this means non-trading losses can immediately decrease the margin for trading positions.
• Execution is satisfactory, though not top-tier. Tests showed 0.2–0.4 pip slippage in stable liquid markets, but news-induced volatility increased some fills to around 1 pip. Thinner AIM stocks often experienced 2–4 point slippage.

Go to Spreadex Read the full Spreadex review

Our Take On Interactive Brokers

Interactive Brokers ranks highly for seasoned traders due to its robust charting platforms, live data, and bespoke layouts via the new IBKR Desktop app. Its competitive pricing and sophisticated order choices appeal to traders, and its wide equity options are industry-leading.

Pros

• IBKR is a highly respected brokerage, regulated by top-tier authorities, ensuring the integrity and security of your trading account.
• Interactive Brokers has introduced a single platform linking prediction markets on Kalshi, CME Group, and ForecastEx. Users can trade yes/no contracts on political, economic, and climate events, with fixed $1 payouts. Enjoy 24/6 market access and earn interest on eligible positions.
• The TWS platform is tailored for intermediate and advanced traders, featuring over 100 order types and a dependable real-time market data feed with exceptional uptime.

Cons

• TWS has a steep learning curve, making it difficult for newcomers to navigate and grasp its features.
• IBKR offers a variety of research tools, but their inconsistent placement across trading platforms and the 'Account Management' webpage creates a confusing experience for users.
• Support can be sluggish and frustrating. Tests reveal that you may face challenges reaching customer service quickly, which could result in delays in issue resolution.

Go to Interactive Brokers Read the full Interactive Brokers review

Our Take On IG

IG offers a complete package: an easy-to-use web platform, top-tier beginner education, enhanced charting via TradingView, up-to-date data, and strong trade execution for seasoned traders.

Pros

• IG excels with its diverse instruments, offering stocks, forex, indices, commodities, and cryptocurrencies. Additionally, it provides US-listed futures, options, and an AI Index, ensuring varied diversification opportunities.
• IG is aiming to expand its market roster with prediction markets covering politics, sports and entertainment in the UK (subject to it being granted a UK gambling license), with other regions potentially to follow.
• IG secured a crypto asset license from the FCA, enabling its return to the UK market. It now offers buying, selling, and storage services for over 55 digital tokens with fees starting at 1.49%, all under FCA regulation.

Cons

• Beginners may find IG's fees complicated, as they vary depending on the trades or services. This could cause confusion and unexpected costs.
• IG has ended its swap-free account, diminishing its attractiveness to Islamic traders.
• IG imposes a monthly inactivity fee of $12 to $18 after two years, discouraging occasional investors.

Go to IG Read the full IG review

70% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

Our Take On Trade Nation

Trade Nation caters to discretionary traders aiming to speculate on major indices like the US 500 or liquid FX pairs, with the certainty of fixed spreads. Our tests revealed the TN Trader's fixed spreads to be advantageous, especially during economic announcements, thanks to its dependable charting and capped spreads.

Pros

• Trade Nation's 2026 alliance with Volt has streamlined payments for Australian traders, enabling instant deposits and withdrawals via PayID. Faster payout features are also anticipated for UK and EU clients.
• The broker expanded into Europe with regulated online trading services after securing authorization from Portugal's CMVM boosting its safety protections for European residents.
• During tests of the TN Trader account in standard market conditions, fixed spreads remained stable. Major forex pairs experienced prompt order fills, albeit with slight entry level drift as prices fluctuated between click and execution.

Cons

• Offshore SCB and FSA firms offer retail investors leverage up to 1:200 and 1:500. In contrast, regions like the UK, Europe, and Australia cap leverage at 1:30. Thus, an FSA client can access 16 times more exposure than a UK retail client on identical trades. However, this comes with reduced oversight and no compensation schemes.
• The FCA, CMVM, and ASIC clients are ineligible for the 2–20% rebate scheme. Consequently, active traders in these areas cannot receive transaction rebates.
• There is no raw or ECN pricing tier, often favoured by traders. Regardless of your deposit or trading volume, you receive the same fixed (or variable on MT4) pricing as novices, rendering it particularly unsuitable for scalpers.

Go to Trade Nation Read the full Trade Nation review

67.3% of retail investor accounts lose money when trading CFDs with this provider.

Our Take On Eightcap

Eightcap excels for traders, offering diverse charting platforms, educational Labs, and AI tools. With over 120 crypto CFDs, it stands out in crypto trading and has won our 'Best Crypto Broker' award twice consecutively.

Pros

• Eightcap has excelled in all essential trading areas, surpassing all rivals to clinch our 'Best Overall Broker' award for 2024. It also earned the titles of 'Best Crypto Broker' and 'Best TradingView Broker' for 2025.
• In 2026, Eightcap integrated TradeLocker in select areas, establishing itself as the premier regulated broker for this platform. It continues to offer ultra-fast execution and competitive fees for active traders using the charting software.
• Eightcap has launched GOLD247, offering 24/7 gold/USD CFD trading with up to 1:20 leverage, 0.01-lot minimums and zero commission for weekend gold traders.

Cons

• Despite the growing range of tools available, Eightcap lacks popular industry resources such as Autochartist and Trading Central. These provide advanced charting analytics, live news, and essential market insights for traders focused on short-term strategies.
• Eightcap must enhance its range of over 800 instruments to rival top competitors like Blackbull Markets, which offers 26,000+ assets, especially improving its limited commodities selection.
• The demo account is available for 30 days, after which it requires a request for extension. This is less convenient than XM's offering, which provides an unlimited demo mode.

Go to Eightcap Read the full Eightcap review

71.28% of retail traders lose money when trading CFDs

See all Brokers

What Is Momentum Trading?

The definition of momentum trading is the process of buying and selling an asset based on the strength of its price movement. Investors will follow others in the intraday market who are also capitalising on short-term upwards trends. This is known as herding.

When an asset hits a high, more traders will look to exploit the opportunity, which then pushes the market price even higher. Once a large volume of sellers has entered the market, the momentum will typically change direction and force the price down again.

Investors will therefore buy when an asset is rising and then sell once it is expected to start coming down. As such, rather than following the concept of ‘buy low, sell high’, momentum trading seeks to ‘buy high, sell higher’. We’ll cover how to day trade using these momentum strategies later.

The strategy is hugely popular among individuals looking to trade in any market, including forex, penny stocks, shares, options, futures, ETFs and even cryptos. It’s also worth noting that momentum trading relies more heavily on the technical analysis of short-term price movement, rather than long-term fundamentals.

Momentum trading can sometimes be confused with other similar trading strategies. Let’s break down the terminology briefly below:

• Day trading – A broad term describing a short-term strategy that primarily uses technical analysis to open and close multiple positions within one trading day. Day traders will also use scalping or momentum strategies.
• Swing trading – Swing trading also focuses on short-term technical analysis and aims to trade within the ranges of support and resistance. Swing traders hold on to trades for days or weeks.
• Trend following – A long-term strategy that aims to buy on upswings and sell on downswings. Trend traders are more concerned with what the price is doing over the long-term, as well as the size of trades.
• Position trading – Commonly compared to buy-and-hold investing, position trading is a long-term strategy where participants enter the market in the hope that the value will increase over time. Position trading is also considered to be a form of trend following.

Pros Of Momentum Trading

When used correctly, momentum trading can offer some attractive benefits:

• Profit potential – Momentum traders rely on liquidity in the market, meaning there is a high volume of buyers and sellers in the market. This creates more competitive pricing and the potential to generate high returns within short time periods.
• Accessibility – Compared to high-frequency scalping or day trading, momentum strategies are less demanding and can therefore work well for beginners. Furthermore, since the strategy relies on volatile and liquid markets, you will be trading popular assets such as gold, crude oil, EUR/USD, or even cryptocurrencies such as Bitcoin.
• Volatility – Whilst it can involve risk, traders can use volatility to their advantage when momentum trading. The aim is to capitalise on price swings and ride volatility in the market during the early stages of an uptrend.

Cons Of Momentum Trading

However, traders should bear in the mind the following drawbacks:

• Emphasis on short-term moves – Due to the nature of momentum trading, traders will notice a greater emphasis on technicals and short-term price action. As such, the strategy might not be ideal for long-term fundamental traders.
• Not ideal for bearish markets – Momentum trading works best in bullish markets where investors can herd towards an uptrend. Bearish markets, on the other hand, are riskier and present fewer opportunities to profit.
• Time-consuming – Momentum trading is considered by some as more time-intensive than other styles of trading. This is because traders will need to focus on pursuing a trend when it starts, which may last for minutes or hours.

Momentum Trading Indicators

In order to develop your strategy, you’ll need to familiarise yourself with technical indicators and oscillators within your live charts. These, if used properly, can help you to analyse price action and uncover new trends. There is a variety of indicators you can use, but we’ve explained how to do momentum trading with a few popular options below.

With any strategy, always ensure that appropriate risk management rules are in place in order to protect your earnings against disaster. Even using the most polished strategy cannot guarantee a winning streak, so it’s worth learning how to calculate your risk profile before you start.

Momentum Indicator

The momentum indicator is technically an oscillator, as it fluctuates between extreme high and low values, relative to a central line. The indicator is a key tool for determining the entry and exit signals within a momentum trading strategy.

The indicator measures the strength of an upward or downward trend by comparing the most recent closing prices with others within a particular time frame. It can therefore determine how overbought or oversold the market is.

When the indicator crosses through the centre line, this indicates that momentum is either increasing or decreasing. Traders will therefore use this indicator to determine whether to buy or sell.

Typically, the momentum indicator works best when combined with others, including the MACD, RSI, Stochastics and Moving Averages. We’ve covered a few of these examples below.

Moving Averages (SMA & EMA)

Widely used across all methods of trading, moving averages help to identify trends by blurring out market noise in both short-term and long-term trends. Momentum traders will use moving averages to determine whether a trend is accelerating.

The simple moving average (SMA) shows the average price of an asset over a given period of time. The exponential moving average (EMA) places a higher weighting on more recent quantitative data.

Trading with EMAs therefore tends to be more responsive to the latest price changes than with SMAs. As a result, EMAs can be better are smoothing out spikes in an asset’s historical price.

Moving Average Convergence Divergence (MACD)

The MACD indicator shows the relationship between two moving averages of an asset’s price. Specifically, the calculation for MACD is to subtract the 26-month EMA from the 12-month EMA. This formula creates the MACD line as well as a 9-day ‘signal line’.

The momentum trading line will trigger buy and sell signals depending on where the MACD crosses. The idea is that a short-term MA will indicate current price action, whilst a long-term MA looks at current and past prices.

If the separation between the lines widens, this could indicate a new trend, where a convergence of the MACD with price action confirms the strength of an upward trend.

Relative Strength Index (RSI)

Trading with the RSI indicator allows you to see the average gains and losses over 14 periods. The RSI oscillates between 0 and 100, indicating the overbought or oversold conditions of the asset’s price. If the price hits 70 or above, the market is thought to be overbought, whilst values below 30 suggest oversold conditions.

The idea behind RSI is that clear trends will usually come from retracements between the price levels. Divergence will therefore occur when momentum and price are moving in different directions. Traders will look to open and close positions in the middle of these trends.

Momentum Trading Top Tips

Now that we’ve covered some key technical analysis indicators for your strategy, there are some other useful tools that you could add to your momentum trading checklist. Most of these can be found in an online trading platform or app, some of the best ones being MetaTrader 4, cTrader or Thinkorswim.

It’s not compulsory to trade using all of the options below, but depending on individual preferences, they can help to boost certain methods of trading. You can check out some of our top broker reviews here. You can also check out this list of forex brokers if you only want to focus on forex trading.

Use A Demo Account

No matter the experience level, a demo account or trading tutorial can benefit traders in various ways. If you’ve signed up to a new broker, a demo account allows you to try out the features of the platform and practice placing risk-free trades using virtual money.

You can also use a demo account to test out a new strategy in real-time. Conveniently, many top brokers also offer demo accounts without a time restriction, so you can use them alongside your live account whenever needed.

Automate Your Strategy Using Bots & Signals

Although they aren’t everyone’s cup of tea, automated tools such as trading robots or forex signals can help to determine optimum entry and exit points. Momentum day trading strategies can work well with these tools, though not all of them will be suitable.

Trading bots are essentially automated market scanners that can be programmed to suit any desired strategy. Once the bots have identified an opportunity, they can automatically submit a trade order for you.

Similarly, signals will follow specific criteria set by the trader and will make a suggestion on buy and sell moves once these have been satisfied. Signals are often generated by a trading bot but they can also be managed manually by another trader.

You may also get access to a backtesting feature that allows you to create and run bots or strategy indicators using a custom algorithm. This can be particularly useful for traders who know how to code within a programming language such as Python.

Use A Variety Of Learning Materials

Momentum trading requires a solid understanding of trending markets and how to use technical indicators to take advantage of them. The best education you can give yourself is through a variety of different materials, both within your broker’s platform and through third-party resources.

This could include trading guides, a strategies course, published research papers, podcasts, blogs, videos or newsletters. Some brokers can also recommend forex trading books or even supply PDF copies of e-books.

Take Advantage Of Platform Tools

Most good platforms will offer additional features that can help you to learn and trade seamlessly. An economic calendar and news feed will likely be at the top of your list. These can keep you abreast of the latest market news and economic developments that can determine a new trend or price direction.

If you’re a social trader, you may also want to utilise any trading forums, chat rooms or discussion groups within the platform. These can be excellent tools if you need to seek quick advice from more experienced traders.

You could also look into trading alerts which are notifications that automatically trigger if conditions change within the market. These can be customised to suit certain criteria and can cater for different requirements, for example, if a certain news event hits the market you wish to trade.

Final Word On Momentum Trading

In this article, we’ve covered an explanation of how momentum trading works, as well as the basics of trading using various indicators.

Whilst the strategy can be time-consuming, many traders view momentum trading as a good opportunity to exploit strong uptrends. Furthermore, traders can take advantage of popular volatile and liquid markets.

However, momentum trading does require strong technical analysis skills on short-term time frames, so it’s unlikely to suit traders who prefer long-term buy-and-hold strategies. If you think momentum trading could work well for you, we recommend utilising a practice account and other platform tools to model your own trading system.

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