Momentum Trading – A Price Action Trading Guide

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Momentum Trading – A Price Action Trading Guide

Momentum is another word for how the price on your charts moves. Momentum analysis, though, is one of the most important skills any trader can learn.

In this article, I will provide an introduction to momentum analysis. If you want to know more about how to trade using momentum analysis and what a professional trading strategy looks like, take a look at our Forex and Futures advanced trading courses.


What is momentum?

First of all, we need to understand what momentum actually means but this is straightforward.

Momentum = Trend strength


There are two ways of looking at momentum. The first one just looks at the overall trend strength.

When the price is in a strong or healthy trend, traders say that the momentum is bullish or bearish (in a downtrend).

When we come to the micro level later, we will see that momentum also exists when we just look at individual candlesticks. A long candlestick without wicks (shadows) usually is considered a high momentum candlestick.


Below are three examples:

  • Left: A trend with strong bullish momentum at first. At the top the momentum ‘faded’ (became weaker).
  • Middle: A price chart with no momentum. Price is just going up and down without any direction or strength.
  • Right: A market where the price went from strong bullish momentum to strong bearish momentum.


Following and understanding momentum

To understand and read charts like a pro, let’s follow momentum here a little bit during the trend and reversal.

1: First, we are in a strong uptrend where price trended close to the outer Bollinger Bands®. This is a high momentum phase.

2: Then price entered a regular consolidation after the first trend wave. This is a normal behavior during trends and the price usually moves in those wave-like phases.

3: At the top price then reversed stronger. Here we then saw a strong sequence of three bearish candlesticks. This was the first time in a long time where price showed such strong bearish momentum. This is a significant signal that something is changing.

4: When price breaks the previous low and makes a lower low, the momentum completely turns.


Candlesticks and micro-momentum

As I said above, just comparing how many bullish vs. bearish candlesticks you have and how strong they are, you can gain a deep understanding of price charts. By the way, this is also what indicators like the RSI or the Stochastic do.

Below you see a recent trade of mine. I also share all my setups every weekend with our students. If you want to benefit from my weekly market breakdown and get a list with the best setups, take a look at our trading course: Tradeciety Forex membership

You can see that the downtrend was indicated well in advance. On the left, the price was going up strongly without any bearish interference and the sellers never had any chance to move lower. After the price rose into the blue zone, things changed and now the bearish candles become much stronger and longer.

Then we just wait for all the other signals of my trading strategy and once the trade is ready, the price immediately fell into my take profit target.


USD/CAD fading momentum

The screenshot shows the USD/CAD 4H chart which many traders are looking at right now. Price trended nicely higher but recently, the momentum got weaker and price ‘rounded off’.

This can mean one of three signs:

  • The trend is losing strength and continues to trade sideways
  • The trend is losing strength and going to reverse
  • The trend is just pausing and then continues higher

Most people make the mistake in their trading that they don’t wait for the final momentum signal. If I am looking to sell the USD/CAD, I will wait until I can see a clear high momentum bearish bar or sequence that confirms price is actually going lower.

Amateurs will try to forecast a move and then either buy or sell as long as price is still in this range; this is a low probability trade and predicting is not going to work.


As you can see, momentum analysis is a great way of looking at charts and it should be used by all traders, regardless of their style.


Questions? Just leave a comment and I’m happy to help you out.






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Comments ( 10 )

  • Thisisc4t

    2,5 years,
    no one told me about this, just one hour ago someone tell me about momentum, and google guide me here…

    what a good 2,5 years…

  • Bruno Pessoa

    After this wonderful explanation, I hope to better identify the momentum!

    Your classes are helping me a lot.

    I hope to get some money soon to study with you.

    You Rock!

    • Rolf

      Thanks, Bruno. That is great to hear.
      I look forward to welcoming you in our course and forum 🙂


  • Leehle

    That is well said indeed yet i have tried a few strategies and indicators in the past 4 years then in 2016 decided not to use any of the indicators then i learned naked charts and price action.
    Thats when i realised that my knowledge merged massively spoting types of formations when candles have closed in higher time frames
    Pin bars, hanging man, dark cloud covers, spinning top, shining evening star and bullish or bearish engulfing candlesticks the list goes on and on .
    Then i realised after some time or must i say during high volatility that price action may work and not then was puzzled for some time then decided to implement scalping with lower time frames using price action guess what it worked.

    But always keep in mind that the market is controlled by traders emotions thats why it is very vital to master and apply certain strategies in specific moments .

    Have you ever analysed a certain pair for some time over and over again ut dont seem to get it right ? When placing trades goes to profits then hits SL that is painful i know.
    Well that implies your strategy in not favouring the votality in that specific moment .

    Try to combine and maintain consistentcy

    I recently joined a signal provider not cause i am incompetent but to compare obtions and to validate my setups with a reputable provider

    Thanks for the insight of momentum with price action.

  • Mike Adedio

    Just read your short and powerful post on Momentum Trading. What are the other signals of your trading strategy?

  • Lonnie

    Does momentum trading included in your course?

    • Rolf

      Yes, it is a part of our course and we build on top of regular momentum analysis to get into advanced chart reading.

  • Rasoul

    What is the difference between momentum analysis and price action analysis?

  • Sk

    I want to know if Momentum= Trend Strength
    and trend strength comes when volume rose so…
    Volume=Trend strength?

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