What should a trader do when momentum turns negative?

When momentum turns negative, selling to avoid further losses is a prudent strategy. Negative momentum indicates that the price of an asset is declining, suggesting bearish sentiment and potentially a continued downtrend. By selling, a trader can protect their capital and minimize losses that could occur if the price continues to decline.

This approach aligns with risk management principles, where the focus is on preserving capital during unfavorable market conditions. It allows the trader to reassess their position and decide whether to re-enter the market later under more favorable circumstances.

The other strategies listed may present higher risks during a period of negative momentum. Increasing position size aggressively could lead to magnified losses. Buying to capture potential rebounds assumes the market will quickly turn around, which may not occur in a negative momentum scenario. Waiting for further confirmation can be more cautious, but it may miss initial opportunities to exit a losing position promptly. Identifying when to act decisively in response to negative momentum is crucial for effective trading.