Over 300 years ago there was a cool fellow by the name of Issac Newton who came up with all kinds of great stuff that is still used today, including his contribution to mathematics in the form of calculus and his laws of thermodynamics. But among his most noteworthy accomplishments (and the ones that can be used by the modern currency traders of the 21st century) were his laws of motion.

While Newton's famous equations of motion can be applied to nearly everything in the physical world, understanding this basic concept of motion and momentum can go a long way towards making you a better forex trader. The basic idea behind the concept of momentum is that any object that is in motion will tend to stay that way until it is influenced by an outside force. So what the heck does this have to do with currency trading?

Most every trader in the world has heard the phrase "the trend is your friend," but it is truly amazing how many traders seem to forget this adage when they are working in a live trading environment. This basic principle of motion, the idea of momentum, can be just as easily be applied to a physical object as it can be to the price of a certain currency pair.

If a currency is moving up or down in value, it will tend to stay that until it is influenced by an outside force that can change its value, i.e. buying or selling pressure. So with this basic idea we can see that once a basic trend of the market is identified, it is within your best interest to trade in the same direction as this trend.

Too many forex traders, and especially intra-day forex traders, seem to forget this basic idea of trading with the trend. It is a simple probability that the price of a certain market will continue moving in the path of least resistance and sustain its momentum until there is sufficient buying or selling pressure to change this momentum. As a basic rule of trading, you could say that if there is a trend and you are seeing relatively quiet market conditions (meaning there is no real cause for a change in value), then that trend will likely continue and it will be in your best interest to place trades in the direction of that trend.

It is one thing to just say "the trend is your friend," but it is another thing to make a habit of always identifying the prevailing market trend before you enter into any open positions, and making sure that the direction of your trades always corresponds to the market trend.

Nathan Navachi is a professional marketer and trader who specializes in forex currency trading. He is webmaster over TheCurrencyMarkets.com which is a professional learning portal that covers topics such as the different types of forex market analysis.

This entry was posted on Monday, September 7th, 2009 at 8:19 am and is filed under Currency Trading. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.