Understand Momentum Trading

Understand Momentum Trading

Once the range gets broken either on the upside or the downside the trader should look to trade in the direction of the breakout. The breakout is an indication that the sentiments in the market are changing and the price could now start trending. This is what you do on the Bitcoin Trader platform.

Momentum trading

When the trade breaks out of a range then this lets the traders know that market momentum is about to begin in a direction, be it upside or downside. One needs to understand that the breakout either upwards or downwards is because of some news or something significant that has caused this movement. There are some changes in the market condition that is forcing the price to move in a particular direction. This momentum will also be forced because there is a trade acting in the opposite direction too. So when a trader closes his position in which he was short then it is actually a long position that is being created. Similarly, if a trader closes a long position then this creates a bearish movement.

This adds on to the momentum is what works in favor of the trades when they enter into a breakout position. It lets the traders capitalize on the price movements. You need to be able to spot this breakout early on to get into the trade fast and gain maximum profits from the trade. This lets you buy at a very low price or sell at a higher price and make a lot of gains.

The risk to reward ratio

The breakout trades are very popular because these have a strong risk to reward ratio. The reason for this is that to take breakout trades you do not have to wait for a particular trend to get formed. The trader does not waste time to enter the trade and as soon as he sees that the range has been broken he enters the trade. They do not have to wait for a trend to form which actually takes a lot of time. The breakout traders are fast to spot the new market trend fast.

Support resistance

A breakout trade can form on any time chart. All that you need to do is to spot if the price is moving in a range. If it is, then draw a support and resistance line. When you connect the highs of the candles and if there are three qualified touches then this is the support. Similarly, draw a line if there are three touches on the downside of the candle then that is the resistance. If anyone of these line breaks, it indicates that a breakout has happened.