I’m having some difficulty understanding the difference between momentum trading and trend following trading. Can someone outline the differences?
Hey AtomicDog, word up. You can use a Momentum system in trends, you will make less than trend traders, but you will still make bank. You cannot use a Trend system in a range bound or choppy market. This is where you see people blow up accounts.
They go along average trade, 300 pips, in a trend, then suddenly they start getting stopped out, or profitability per trade plunges. Soon they are running around in the parking lot like their hair is on fire. Or they end up like Mikey, selling crab cakes on the Ocean City Boardwalk in Maryland.
Trend systems follow trends up or down, momentum systems follow brief spikes of momentum for quick in and out. Momentum can be used for longer term, but, I think it is more effective intraday.
The Ever Following Mo VIPER
Unfortunately, momentum is a word that is thrown around a bit too much. I am appalled at some of the explanations given online for the meaning of the word as it pertains to trading. In other words, it’s very subjective. It always comes back to this: trend trading, in essence, is momentum trading. Al Brooks calls this the “always in” approach. In other words, you are always in either long or short, depending on what the market direction is.
Getting back to the word “momentum,” it is a very simple formula. Momentum = mass times velocity (P=MV). We can use this formula and apply it to trading by substituting mass for volume and velocity for speed. So really, market momentum can realistically be described as the volume of participants in the market times the speed at which price is changing in one direction. The more participants in the market AND the faster the price is changing in one direction, the greater the price momentum in that direction.
For example, during the spike phase (or breakout phase) of a bull trend, many market participants are pushing price higher at a very rapid pace, and a large bullish candle will normally close on its high. With this information provided, a true momentum trader will go long for just about any reason. He’s not interested in waiting for a pullback. He’s more afraid of getting trapped out of this strong momentum move.
The second phase of the trend, the strong channel phase, will show a bit less momentum, but will still be very strong. Not many traders will go short. As momentum slowly dissipates, more two sided trading will be prevalent and eventually, we’ll see a trading range develop and a possible end to the trend. At that point, all bullish momentum is gone.
Struth steve. Did you make this up yourself or did you read it in a book
Haven’t seen you contribute much on the subject, or any subject for that matter. Just your usual criticism. By the way, are you even interested in trading? I don’t think I have ever seen a post from you about trading. Care to refute what I have written, or are you not really all that bright, like I have often surmised.
Dont have a box man.
Boxes rule bro. You should give it try instead of calling the kettle black.
Problem is people are lazy. You see it all the time here.
Yep, that answer’s my question.
I like BabyPips topic very much that any how it’s helpful for me. Few days ago I was also reading from internet about momentum to get clear concept about the topic. Stevee I like what you are saying. I also get the concept how you are saying but your example clear my confusion. Thumbs up bro. I have not found momentum word anywhere of trading. If someone tries to said against trend trading they use momentum.
Momentum in markets cannot be quantified by Physics Equations. For example, if you hunt, or shoot competitively this one is very important.
Or, or if you want to know the momentum of a baseball (P=MV), but markets, no way. Physics has nothing to do with trading. Newtonian physics are very sable, set in stone. and has definite rules that the conform to natural law. However, when you move to Quantum Physics things change, a lot. The concept of Photon duality, Heisenberg’s uncertainty principle, quantum entanglement even Brownian Motion, all are things that Newtonian Physics cannot explain.
So what the heck does this have to do with trading??? Trading is about people, and yes there are Quants, but these are built by people, using well known mathematical concepts and equations. Math has not changed, only the application of these concepts to financial markets. So bottom line it is about people.
Do you know dear reader how long it takes, for a trained Psychiatrist, using the Diagnostic and Statistical Manual of Mental Disorders (DSM–5), to make a diagnosis of a patient, it can take years of close observation, to determine the exact illness. There are no Algorithms that can do this, up close and personal is what is needed.
Also there is this, P. T. Jones once said about a very profitable oil trade he had put on, “any time you get 8 people in a room together, you will never get an agreement”, his observation of an opec meeting was on the money. See, I told you it is about people, and how do you know about what is on peoples minds, or mindless as it may be??? Price action.
Not some kind great revelation, but something to keep in mind. All indicators are based on Price/Time, and Price/Time is based on emotion and calculation. Short term High Volatility Momentum can be caused by a News item, or financial report. Long trends, while having momentum, are what they are, trends. Usually in a trending market you will make way more profits if you hold, why? Because the market is complacent, just floating high/lower. Look at the VIX, and the current DOW, floating down a lazy river on a tube with a beer in hand.
So it is all about being able to understand what is on the minds of those whom we are trading with, each pair is different with different people, goals and tactics. You will not learn this by applying some theoretical Physics numbers. You will only learn it by studying the market, paying attention to news and then seeing how it applies to the pair you are trading. Once you figure this out, then you get to work on your own mind, and well that’s another universe.
back to P’s question. Most momentum traders trade short term on momentum caused by a news event, report etc. The spikes that are seen in price, are a reflection of massive momentum moving in. Sometimes this momentum lessons, but is still there, pushing the price one way or another. Sometimes it is there for 10min and poof it disappears, and price returns to the mean.
Trend is just that, a directional movement over x period of time its great when it works cause everyone looks like a Giant.Just jump in and hold on.
The Ever Watching Dr. Feynman Lectures VIPER
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I would like to thank Steve for his answer, and everyone else…, um…, you posted too.
What the hell is an Atomic Dog? 
So momentum is when the price is moving sharply, with long candles. So you can have a trend without a lot of momentum. But breakout trading could be considered momentum trading, correct?
In his book One Good Trade Mike Bellafiore he makes a distinction between trend trading and momentum trading. But I really didn’t understand the difference from that book. In his various e-books Laurentiu Damir makes a distinction between trend trading and momentum trading. I HATE reading e-books for content. I may have to bite the bullet and buy his paperbacks.
OK, THANK YOU.
Oh, and if physics equations have little to do with trading, music videos from the '80s have ever less. 
phydaux = Fido, Dogs name, Atomic Dog, song by George Clinton, of Parliament fame.
The Ever Bow-Wow-Wow-Yippie-Yo-Yippie-Yeah VIPER
Actually phydaux was the name of Larry Norman’s dog. I appropriated it as my screen name more or less EVERYWHERE.
And if you know who Larry Norman was, then you win the internet today.
Don’t ask me, I’m only visiting this planet.
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