Far from the basic knowledge of typical traders, trading strategies would not be effective if the focus lies in the signal alone. Like any other strategies, there’s a step by step process which should be followed and later will lead to a sensible signal.
Trading could be hard and easy. It depends on the strategies utilized by traders. It doesn’t follow that a novice trader would have a hard time depicting the right technique and that the professional traders take it as easy as one two three. Whether you are an amateur or a professional one, only a strategy in line with your capability and lifestyle would perfectly fit.
Basically, some traders look for major pullbacks and previous reversals to determine the future trend of a certain stock. The sudden price movements from the previous sessions could somehow show a pattern and the history can totally repeat itself. There are also instances where the long term perspective for the stock is determined through the widely used of moving average.
Traders typically follow, scalping, technical, fundamental and swing trading techniques. In this section, we are going in depth with momentum trading and how to use this technique to generate profits just in time.
Overture to Momentum Trading
Momentum trading is simply a strategy where the traders look for stocks with apparent jump during the market session. The practice is they take advantage of the high volume and ride along with the surge. Momentum traders gain as long as the asset stays uptrend; however, there are aspects to be considered before trading with the momentum.
As a momentum trader, you have to be keen with the movement of the stocks. This will involve jutting down all the stocks which are traded the most and compare their respective volume. To follow closely the price movements, better log in to your trading platform as early as possible.
It helps that you know the stocks which are highly recommended by analysts and experts. It will give you an advantage in determining the equity with the highest possibility of edging higher during the day. In line with this, check the market updates before trading, and then anticipates the stocks which could play with the green thread.
For instance, in the article released by FSM News entitled Would SolarCity Further Drag Tesla? It showed that Tesla would probably go down, thus, don’t consider this stock. On the other hand, in the article GoPro Karma To Give Strong Price Rally it was anticipated that GoPro would perform well in the market. In this case, you may consider GoPro as one of the stocks which would be traded in high volume.
Afterwards, you can make a pre-market assessment. Check the price movements of the stocks that you wish to trade. Examine which stocks have the highest tendency to soar and which could rapidly increase in higher volume the rest of the market session.
The next step would be analyzing the chart. There are factors to be considered in depicting the right usage of the momentum line. To make it easier to comprehend, the positive figures of the momentum line mean that there’s a sustained upward trend of the stock while the negative numbers indicate a possibility of a downward trend.
Afterwards, you have to wait for a breakout. Watch closely when the bids start to line up and offers begin to fade little by little. The most important thing after identifying the break out is to find out the buy and/or sell trigger in the coming momentum periods. Just like that, it would easy for you to get in at the market price and place the order finally.
Keep in Mind
Don’t open a position immediately when the stock starts to jump. Wait for a while until the momentum is confirmed. This is one of the common mistakes of the momentum traders, they get easily excited and distracted by the green candles.
Focus as you check the price movement. Pay attention to the movement of the trend and any signs of reversal or change of direction. The stock movement could be tricky at times, thus, keep your eyes on the screen.
Don’t make it a habit to keep an open position overnight and close instantly a bad position. Remember that a lot of things could happen in the market and market volatility couldn’t be avoided. More often than not, quarterly earnings report, policy rate adjustments and upcoming U.S. economic data have a great impact on the stocks.