What is Momentum Trading?

Momentum Trading is a strategy that focuses on stocks that are moving significantly in one direction on a high volume. This strategy is used by Momentum Traders who usually tend to Day trade such stocks. Strategy involves holding the position for a few minutes, a couple of hours or even the entire length of the trading day, depending on how quickly the stock moves and when it changes direction.

Momentum Trading Strategies

Only trade stocks on “Strong” upward trend or downward trend.

Avoid Stocks that are moving sideways. (There are exceptions)

Use stock scanners to find stocks that are moving in either direction.

“Only” trade stocks with “Extremes”, which means try to look for a stock that has once in a year type of an event. (This is what makes the stock run clear)

Find stocks that are moving by ‘Market Capital’ and ‘Float’.

Obviously, stocks with smaller Market Cap and Float will trade faster. (This is because they have reduced supply of share on a higher demand)

Look for catalyst: Stocktwits, Investorshub, Yahoo etc. (I usually go here for most up-to-date news)

Look for news. (Big News)

Stocks that have recently reported great earnings.

Bio-tech stock that has just released news. (Phase 3a/3b)

Small company that has announced partnership with a bigger company.

Acquisitions and Merger.

Momentum Trading Plan:

Look for entry ONLY after you’ve confirmed that the stock is:

Already starting to surge up or down in pre-market or in the first 30 minutes of market open.

There is a Catalyst

A small Market Cap or Low Float.

From 9:30 to 11:30 am look off the 1 min chart then use 5 minute chart. (Since 1 minute chart gets too choppy)

Momentum Trading Patterns:

• On the uptrend look for:

1. Rising Wedge or Ascending Wedge

2. Rising Rectangle

3. Bull Flags and Pennants

• On the downtrend look for:

1. Falling or Descending Wedge

2. Falling Rectangle

3. Bear Flags and Pennants

Note: When buying Momentum stocks put a tight stop just below the first pull back.

Here is an example for Rising and Falling Wedges:

Example of Ascending and Descending Rectangle:

Here is an example for Flags and Pennants:

Note: This post is for informational purposes ‘ONLY’, it is not a recommendation to buy or sell a security.