Reading: Scroll down below the video and read the excerpt from Luther’s On the Freedom of a Christian. Of course, you can read the whole thing if you find the material interesting.
…But you ask how it can be the fact that faith alone justifies, and affords without works so great a treasure of good things, when so many works, ceremonies, and laws are prescribed to us in the Scriptures. I answer: before all things bear in mind what I have said, that faith alone without works justifies, sets free, and saves, as I shall show more clearly below.
Meanwhile it is to be noted, that the whole Scripture of God is divided into two parts, precepts and promises. The precepts certainly teach us what is good, but what they teach is not forthwith done. For they show us what we ought to do, but do not give us the power to do it. They were ordained, however, for the purpose of showing man to himself; that through them he may learn his own impotence for good, and may despair of his own strength. For this reason they are called the Old Testament, and are so.
For example: “thou shalt not covet,” is a precept by which we are all convicted of sin; since no man can help coveting, whatever efforts to the contrary he may make. In order therefore that he may fulfil the precept, and not covet, he is  constrained to despair of himself and to seek elsewhere and through another the help which he cannot find in himself; as it is said: “O Israel, thou hast destroyed thyself; but in me is thine help.” (Hosea xiii. 9.) Now what is done by this one precept, is done by all; for all are equally impossible of fulfilment by us.
Now when a man has through the precepts been taught his own impotence, and become anxious by what means he may satisfy the law–for the law must be satisfied, so that no jot or tittle of it may pass away; otherwise he must be hopelessly condemned–then, being truly humbled and brought to nothing in his own eyes, he finds in himself no resource for justification and salvation.
Then comes in that other part of Scripture, the promises of God, which declare the glory of God, and say: “If you wish to fulfil the law, and, as the law requires, not to covet, lo! believe in Christ, in whom are promised to you grace, justification, peace, and liberty.” All these things you shall have, if you believe, and shall be without them, if you do not believe. For what is impossible for you by all the works of the law, which are many and yet useless, you shall fulfil in an easy and summary way through faith; because God the Father has made everything to depend on faith, so that whosoever has it, has all things, and he who has it not, has nothing. “For God hath concluded them all in unbelief, that He might have mercy upon all.” (Rom. xi. 32.) Thus the promises of God give that which the precepts exact, and, fulfil what the law commands; so that all is of God alone, both the precepts and their fulfilment. He alone commands. He alone also fulfils. Hence the promises of God belong to the New Testament; nay, are the New Testament.
Now since these promises of God are words of holiness, truth, righteousness, liberty, and peace, and are full of universal goodness; the soul, which cleaves to them with a firm faith, is so united to them, nay, thoroughly absorbed by them, that it not only partakes in, but is penetrated and saturated by, all their virtue. For if the touch of Christ was healing, how much more does that most tender spiritual touch, nay, absorption of the word, communicate to the soul all that belongs to the word. In this way, therefore, the soul, through faith alone,  without works, is from the word of God justified, sanctified, endued with truth, peace, and liberty, and filled full with every good thing, and is truly made the child of God; as it is said: “To them gave he power to become the sons of God, even to them that believe on his name.” (John i. 12.)
From all this it is easy to understand why faith has such great power, and why no good works, nor even all good works put together, can compare with it; since no work can cleave to the word of God, or be in the soul. Faith alone and the word reign in it; and such as is the word, such is the soul made by it; just as iron exposed to fire glows like fire, on account of its union with the fire. It is clear then that to a Christian man his faith suffices for everything, and that he has no need of works for justification. But if he has no need of works, neither has he need of the law; and, if he has no need of the law, he is certainly free from the law, and the saying is true: “The law is not made for a righteous man.” (1 Tim. i. 9.) This is that Christian liberty, our faith, the effect of which is, not that we should be careless or lead a bad life, but that no one should need the law or works for justification and salvation.
Let us consider this as the first virtue of faith; and let us look also to the second. This also is an office of faith, that it honours with the utmost veneration and the highest reputation him in whom it believes, inasmuch as it holds him to be truthful and worthy of belief. For there is no honour like that reputation of truth and righteousness, with which we honour him, in whom we believe. What higher credit can we attribute to any one than truth and righteousness, and absolute goodness? On the other hand, it is the greatest insult to brand any one with the reputation of falsehood and unrighteousness, or to suspect him of these, as we do when we disbelieve him.
Thus the soul, in firmly believing the promises of God, holds Him to be true and righteous; and it can attribute to God no higher glory than the credit of being so. The highest worship of God is to ascribe to Him truth, righteousness, and whatever qualities we must ascribe to one in whom we believe. In doing this the soul shows itself prepared to do His whole will; in doing this it hallows His, name, and gives itself up to be dealt with as it may please God. For it cleaves to His  promises, and never doubts that He is true, just, and wise, and will do, dispose, and provide for all things in the best way. Is not such a soul, in this its faith, most obedient to God in all things? What commandment does there remain which has not been amply fulfilled by such an obedience ? what fulfilment can be more full than universal obedience? Now this is not accomplished by works, but by faith alone.
On the other hand, what greater rebellion, impiety, or insult to God can there be, than not to believe His promises? What else is this, than either to make God a liar, or to doubt His truth–that is, to attribute truth to ourselves, but to God falsehood and levity ? In doing this, is not a man denying God and setting himself up as an idol in his own heart ? What then can works, done in such a state of impiety, profit us, were they even angelic or apostolic works ? Rightly hath God shut up all–not in wrath nor in lust–but in unbelief; in order that those who pretend that they are fulfilling the law by works of purity and benevolence (which are social and human virtues), may not presume that they will therefore be saved; but, being included in the sin of unbelief, may either seek mercy, or be justly condemned.
But when God sees that truth is ascribed to Him, and that in the faith of our hearts He is honoured with all the honour of which He is worthy; then in return He honours us on account of that faith; attributing to us truth and righteousness. For faith produces truth and righteousness, in rendering to God what is His; and therefore in return God gives glory to our righteousness. It is a true and righteous thing, that God is true and righteous; and to confess this, and ascribe these attributes to Him, is to be ourselves true and righteous. Thus He says: “Them that honour me I will honour, and they that despise me shall be lightly esteemed.” (1 Sam. ii. 30.) And so Paul, says that Abraham’s faith was imputed to him for righteousness, because by it he gave glory to God; and that to us also, for the same reason, it shall be reputed for righteousness, if we believe. (Rom. iv.)
The third incomparable grace of faith is this, that it unites the soul to Christ, as the wife to the husband; by which mystery, as the Apostle teaches, Christ and the soul are made one flesh. Now if they are one flesh, and if a true marriage–  nay, by far the most perfect of all marriages–is accomplished between them (for human marriages are but feeble types of this one great marriage), then it follows that all they have becomes theirs in common, as well good things as evil things; so that whatsoever Christ possesses, that the believing soul may take to itself and boast of as its own, and whatever belongs to the soul, that Christ claims as his.
If we compare these possessions, we shall see how inestimable is the gain. Christ is full of grace, life, and salvation; the soul is full of sin, death, and condemnation. Let faith step in, and then sin, death, and hell will belong to Christ, and grace, life, and salvation to the soul. For, if he is a husband, he must needs take to himself that which is his wife’s, and, at the same time, impart to his wife that which is his. For, in giving her his own body and himself, how can he but give her all that is his? And, in taking to himself the body of his wife, how can he but take to himself all that is hers?
In this is displayed the delightful sight, not only of communion, but of a prosperous warfare, of victory, salvation, and redemption. For since Christ is God and man, and is such a person as neither has sinned, nor dies, nor is condemned,–nay, cannot sin, die, or be condemned; and since his righteousness, life, and salvation are invincible, eternal, and almighty; when, I say, such a person, by the wedding-ring of faith, takes a share in the sins, death, and hell of his wife, nay, makes them his own, and deals with them no otherwise than as if they were his, and as if he himself had sinned; and when he suffers, dies, and descends to hell, that he may overcome all things, since sin, death, and hell cannot swallow him up, they must needs be swallowed up by him in stupendous conflict. For his righteousness rises above the sins of all men; his life is more powerful than all death; his salvation is more unconquerable than all hell.
Thus the believing soul, by the pledge of its faith in Christ, becomes free from all sin, fearless of death, safe from hell, and endowed with the eternal righteousness, life, and salvation of its husband Christ. Thus he presents to himself a glorious bride, without spot or wrinkle, cleansing her with the washing of water by the word; that is, by faith in the word of life, righteousness, and salvation. Thus he betrothes her unto  himself “in faithfulness, in righteousness, and in judgment, and in lovingkindness, and in mercies.” (Hosea ii. 19, 20.)