Hi, guys!

Today I’d like to talk to you about an important price action concept that I find to be very important when trading support and resistance lines.

Price always reacts in some way on these lines. But the problem is how will it react. You need to know if the level will hold or not. If it’s strong and it holds, then you fade it (buy at a support or sell at a resistance). If there are signs that it will break, then you play a breakout (sell below support, buy above resistance).

So, what is momentum and what does it tell us?

I’m not sure this is the best (or the most clear) definition of momentum, but here goes: Momentum is the speed at which price is going down (if it’s heading towards a support level) or up (if it’s heading towards a resistance level). You can think of it as pips/second.

Let’s say we are watching a support line and price is heading towards it. If it’s going down fast, without stalling too much, then price has strong momentum and if it keeps this strong momentum even when it’s 20 pips away from the support line, chances are it will break that support line and I will place a sell stop below it.If, instead, price is going down 5 pips, then goes back up 3 pips, then goes down another pip, then pulls back a bit, or stalls, and the down-move is slow, then we say that price has weak momentum and we will probably look to go long at the support line.

I lost many trades when I started out because I wasn’t looking at momentum, but recently I found it to be a very important thing to look at. Not MACD, not Stochastics, or who knows what indicator. Price action and market fundamentals are the best indicators in the Forex market. So, watch out for support/resistance levels, momentum and key Fibonacci levels.

Cheers!