Lets start by answering a simpleton question. What is day trading? Day Trading is the bare act of buying stocks with the intention of selling them for a higher price ( brusque selling traders sell stocks with the intention of covering at a lower price to make a profit ) .
deplorably, most beginning sidereal day traders will lose money. trade involves a high sum of risk and can cause founder traders to quickly lose tens of thousands of dollars. however, the tempt of day trade is the fact that skilled traders can make six figures working only 2-3 hours a day.
Most draw a bead on traders are seeking fiscal freedom & security, and independence. In orderliness to be a successful trader you must adopt a trade strategy. My favored is called Momentum Trading Strategy. That ’ s what I ’ meter sharing with you here nowadays .
Momentum Day Trading Strategy
momentum is what day trade is all about. One of the first things I learned as a founder trader is that the only room to profit is by finding stocks that are moving. The well news is that about every single day there is a stock that will move 20-30 % or even more ! This is a fact .
The question is how make we find those stocks before they make the adult move. The biggest realization I made that has led to my success is that the stocks that make the 20-30 % moves all share a few technical indicators in common .
Before going any far, let ’ s pace back for a moment and ask ourselves what we require from a momentum day trade strategy. First of wholly, we need a stock that is moving. Stocks that are chopping around sideways are useless .
So the first mistreat for a trader is to find the stocks that are moving. I use store scanners to find these. I ONLY trade stocks at extreme point. This means I look for a stock certificate having a once in a year type of event. The price legal action associated with this event is about constantly the uninfected .
Day Trading Strategies & The Anatomy of Momentum Stocks
momentum stocks all have a few things in common. If we scan 5000 stocks asking for only the play along criteria to be true, we ’ ll frequently have a number of less than 10 stocks each day. These are the stocks that have the potential to move 20-30 %. These are the stocks I trade to make a survive as a trader .
Criteria #1: Float of under 100mil shares
Criteria #2: solid daily Charts ( above the Moving Averages and with no nearby resistance ) .
Criteria #3: high relative volume of at least 2x above average. ( This compares the stream volume for today to the median book for this time of day. These all refer to the standard volume numbers, which are reset every night at midnight. )
Criteria #4 : A cardinal catalyst such as a PR, Earnings, FDA Announcement, Activist Investors or some other kind of breaking news. Stocks can besides experience momentum without a fundamental catalyst. When this happens, it ’ s called a technical break .
Finding Stocks For My Day Trading Strategies
Stocks Scanners allow me to scan the entire marketplace for the types of stocks displaying my criteria for having momentum .
These scanners are the most valuable tools for a day trader, and I had my growth team build them right into our Chat Room software. Once the scanners give me an alarm, I then review the candlestick graph and try to get an entrance on the first pull back .
Most traders will buy in this lapp spot, those buyers create a spike in bulk and result in a flying price change as the stock moves up. Your speculate as a novice trader is to learn to find the entrance in real-time .
I have created 3 sets of stock scanners for 3 different types of scanning. I have my Momentum Day Trading Strategies scanners, my reverse trade Strategies Scanners, and my Pre-Market Gapper Scanners .
These 3 scanners give me tons of trade alerts everyday. rather of having to manually flip through charts, I can instantaneously see stocks that are in dally. Stock scanners are what every trader nowadays should be using to find hot stocks, whether it ’ s penny stocks, little caps, or large caps .
My Favorite Momentum Day Trading Chart Patterns
Bull Flags are my absolute front-runner chart practice, in fact I like them so much I made an entire page dedicated to the Bull Flag Pattern. This form is something we see about every single day in the grocery store, and it offers gloomy risk entries in strong stocks .
The hard separate for many novice traders is finding these patterns in real-time. These stocks are easy to find using the proprietorship stock scanners I have developed and use everyday in our old world chat rooms .
My Surging Up scanners immediately shows me where the highest proportional bulk in the market is. I merely review scanners alerts to identify the solid stocks at any given prison term of the day .
As a radiation pattern based trader, I look for patterns that support continued momentum. Scanners entirely can not find patterns on charts. This is where the trader must use their skill to justify each trade.
Momentum Day Trading Strategies Pattern #1: Bull Flags
With the Bull Flag Pattern, my entrance is the foremost candle to make a new gamey after the break. So we can scan for the stocks squeezing up, forming the tall green candles of the Bull Flag, then delay for 2-3 crimson candles to form a pullback .
The beginning park candle to make a raw high after the pullback is my entry, with my blockage at the gloomy of the pullback. typically we ’ ll see volume spike heel at the moment the first candle makes a raw high. That is the tens of thousands of retail traders taking positions and sending their buy orders .
Momentum Day Trading Strategies Pattern #2: Flat Top Breakout
The flat top break form is alike to the bull flag traffic pattern except the pullback typically has, as the appoint implies, a apartment exceed where there is a firm charge of immunity. This normally happens over a period of a few candles and will be easy to recognize on a chart by the obvious flat top design .
This form normally forms because there is a big seller or sellers at a specific price degree which will require buyers to buy up all the shares before prices can continuing higher. This type of practice can result in a explosive break because when short sellers notice this resistance level forming they will put a intercept regulate merely above it .
When buyers take the resistance level out, all the bribe intercept orders will then be triggered causing the stock to shoot up identical promptly and the longs will be sitting on some courteous profits when it does !
Real Life Momentum Day Trading Strategy Examples
Above is an example of a talk through one’s hat flag break. You can see we had a nice opening tug on high relative volume followed up by a consolidation period on low volume that finally broke out again. These patterns happen casual so knowing how to trade them is key to making money !
This is another bull flag traffic pattern that worked out absolutely and as you can see it had the same characteristics as the other talk through one’s hat flag practice above. We had a nice opening drive with decent volume followed by a low book pullback before a large jump on the break.
Risk Management 101: Where to Set My Stop
When I buy momentum stocks I normally set a besotted stop rate barely below the first perpetrate back. If the stop is foster than 20 cents away, I may decide to stop out minus 20 cents and come back for a irregular sample. The rationality I use a 20 penny stop is because I always want to trade with a 2:1 profit loss ratio. In other words, if I risk 20 cents, it ’ second because I have the electric potential to make 40 cents .
If I risk 50 cents or more, it means I need to make 1.00 or more to get the proper net income loss ratio to justify the trade. I try to avoid trades where I have to generate a large profit to justify the trade. It ’ mho much easier to achieve achiever if I have a 20 penny hold on and 40 cent prey vs a 1.00 check and a 2.00 profit aim .
When I ’ thousand trade I try to balance my risk across all trades. The best room to calculate risk is to look at the distance from my entrance price to my stop. If I have a 20 cent stop and want to keep my soap gamble to $ 500 I ’ ll take 2500 shares ( 2500 x .20 = 500 )
The Best Time of Day to Trade
The Momentum trade Strategies can be used from 9:30-4pm but I find the mornings are about constantly the best time to trade, specifically the first hour the market is open. I focus my trading from 9:30am – 11:30am. however, at any time during the day we can get a news spike that will abruptly bring a frightful amount of volume into a stock .
This stock which was of no interest sooner in the day is immediately a full campaigner to trade on the first pull back. The beginning pull back will typically take the form of a bull pin. After 11:30am I prefer to only trade off the 5-min graph. The 1-min chart becomes excessively choppy in the mid-day and good afternoon trade hours.
Entry Checklist Summary
Entry Criteria #1: Momentum Day Trading Chart Pattern ( Bull Flag or Flat Top Breakout )
Entry Criteria #2: You have a tight stop that supports a 2:1 profit loss proportion
Entry Criteria #3: You have high relative volume ( 2x or higher ) and ideally associated with a catalyst. Heavier volume means more people are watching .
Entry Criteria #4: broken Float is preferred. I look for under 100mil shares, but under 20million shares is ideal. You can find the outstanding float with Trade Ideas or eSignal .
Exit Indicator #1: I will sell 1/2 when I hit my first profit target. If I ’ thousand risking $ 100 to make $ 200, once I ’ m up $ 200 I ’ ll sell 1/2. I then adjust my end to my entry price on the proportion of my situation
Exit Indicator #2: If I haven ’ deoxythymidine monophosphate already sold 1/2, the first candle to close red is an exit indicator. If I ’ ve already sold 1/2, I ’ ll hold through red candles deoxyadenosine monophosphate hanker as my breakeven stop consonant doesn ’ thymine hit .
Exit Indicator #3: Extension bar forces me to begin locking in my profits before the inevitable reversal begins. An reference bar is a candle that spikes up and immediately put me up $ 2-400 or even more. When I ’ meter lucky enough to have a stock spike up while I ’ thousand hold, I sell into the spike .
Analyze Your Trading Results
All successful traders will have plus trade metrics. trade is a career of statistics. You either have statistics that generate returns or losses. When I work with students I review their net income loss ratios ( average winners vanadium average losers ), and their share of success .
This will tell me if they have the potential to be profitable, without evening looking at their sum P/L. once you finish each workweek you have to analyze your results to understand your current trade metrics .
The best traders keep meticulous deal records because they know they ’ ll be able to data mine these records in order to understand what they should to to improve their trade. I use Tradervue to monitor my trade stats which has been a huge avail in all right tuning my strategies .
Want to Keep Learning? I Teach ALL my Momentum Day Trading Strategies in our Day Trade Courses
In our Day Trading & Swing trade Courses you will learn all the details of this trade scheme. In our Day Trading Chat Room, you be able to hear me while I ’ thousand trade. When I see a stock that has extremely high volume I look to get in on the first or second pull back. pull backs should take the shape of a Breakout Chart Pattern such as Bull Flags or Flat Tops.
Read more: Forum Policy
I am an highly active trader in the first 2 hours of the grocery store and then I slow means down. I normally don ’ triiodothyronine trade wind in the afternoons. Stocks on the Surging up Scanners that are candidates for the Momentum Trading Strategy can be traded adenine early as 9:31 .
sometimes a stock that wasn ’ thymine gapping up and already on my radar for a Gap and Go ! Strategy barter will surge with volume out of the gates and come into playing period for a Momentum Trade. These stocks may have newsworthiness or may be experiencing a technical break or be a sympathy play to another potent livestock or sector .