momentum trading Archives | Bulls on Wall Street https://bullsonwallstreet.com/tag/momentum-trading/ Stop Guessing. Start Trading. Wed, 25 Aug 2021 17:25:05 +0000 en-US hourly 1 https://wordpress.org/?v=6.6.1 https://bullsonwallstreet.com/wp-content/uploads/2019/07/cropped-Untitled-design-14-1-32x32.png momentum trading Archives | Bulls on Wall Street https://bullsonwallstreet.com/tag/momentum-trading/ 32 32 The Best News Catalysts For Momentum Trading https://bullsonwallstreet.com/best-news-catalysts/?utm_source=rss&utm_medium=rss&utm_campaign=best-news-catalysts Wed, 25 Aug 2021 17:23:36 +0000 https://bullsonwallstreet.com/?p=63560 The most explosive stock moves almost always occur with some type of news catalyst. But not all news catalysts are worth trading. When you look at all the stocks gapping up and down every day, it is essential to know the catalyst behind each stock you are considering to trade. We get a lot of ...

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The most explosive stock moves almost always occur with some type of news catalyst. But not all news catalysts are worth trading.

When you look at all the stocks gapping up and down every day, it is essential to know the catalyst behind each stock you are considering to trade. We get a lot of questions about what are the best news catalysts to trade off of. Today we will talk about the best and worst stock catalysts for momentum trading:

Positive Quarterly Earnings Reports

Positive quarterly earnings reports will ignite some of the strongest moves in stocks. Quarterly earnings reports draw the attention of investors on all time frames. Long-term shareholders make decisions about their positions based on these reports, and will often put on new positions after a strong report.

Momentum traders like us will also play these because this catalyst brings in volume and range into stocks, which creates high-quality day trading opportunities. Earnings reports can cause multi-day pushes that lead to great swing trade opportunities.

They also bring a lot of intraday momentum which makes them great for day trading. Positive earnings reports tend to bring the cleanest moves on the short term and long term time frames. Learn more about how to trade stocks with positive earnings reports in the video below:

 Positive Drug Trial Results

Biotech companies will frequently have news updates about the status of clinical trials for drugs they are developing. Company press releases about these developments, whether its FDA approval, successful drug trial results, all have the potential to bring in volume and range into these stocks. Learn more about clinical trials here if you are unfamiliar.

Biotech stocks can offer some of the best day trading opportunities after this catalyst. A ton of range and volume will come into these names at the market open after these press releases.

A Catalyst to Avoid: Buy-Outs

Many inexperienced traders make the mistake of trading a stock that has just had a buyout. They see a stock gapping up 50% with a lot of volume. They get excited and look at the daily chart, and also see that it is breaking out.

However, the company just got bought out by another company, and the stock is just trading sideways in pre-market. A stock buyout doesn’t bring any momentum into stocks. The buyout is usually at a set share price, so there is no reason for the stock trade outside of that tight range. This is a catalyst to avoid as a trader.

Poor Quarterly Earnings Reports

One of the best catalysts for shorting stocks is negative earnings reports. They bring in the exact opposite reaction of a positive earnings report. Long-term investors and shareholders are looking to unload and exit their positions due to the bleak outlook of the company. This creates some amazing shorting opportunities for momentum traders like us. Here is a trade review of an earnings breakdown to show you how we trade these setups:

In our upcoming webinar, we will talk even more about the best and worst news catalysts to trade:

 

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5 Trading Psychology Lessons Every Trader Needs to Learn https://bullsonwallstreet.com/trading-psychology/?utm_source=rss&utm_medium=rss&utm_campaign=trading-psychology Sat, 23 Jan 2021 22:38:29 +0000 https://bullsonwallstreet.com/?p=61488 In trading, you are your own worst enemy. Fear of missing out and chasing. Fear of taking losses because you’re scared. Not taking profits because of greed. Revenge trading because you want to make back what you lost. No matter what stage in your trading journey you are in, trading psychology is the biggest obstacle ...

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In trading, you are your own worst enemy. Fear of missing out and chasing. Fear of taking losses because you’re scared. Not taking profits because of greed. Revenge trading because you want to make back what you lost. No matter what stage in your trading journey you are in, trading psychology is the biggest obstacle for traders to overcome.

Today’s article will show you some of our favorite strategies to overcome some of the most common psychological issues all stock traders and investors face:

Combating FOMO (Fear of Missing Out)

FOMO is the most common reason why we buy stocks to high, or short to low. One of the worst feelings in trading is watching a stock make a big move without you. For some traders, it’s even worse than taking a loss! The stock market is so big, and there are so many stocks moving every day, you will always be missing an opportunity. You have to learn to combat FOMO to become a consistently profitable trader.  This video lesson will help you learn how to overcome FOMO:

Sizing Positions Correctly to Avoid Fear 

Position sizing plays a major role in trade management. One of the most common mistakes traders make is sizing their positions too large. It puts them at a bigger risk of taking a massive trading loss and also makes their trade management much worse.

When you are trading huge size, you will take profits at the wrong places, stop out either too early or too late, and generally be a lot more emotional in your trading. Reducing your size will actually make you MORE money, because of how it reduces emotions and improves your trade management. This video lesson will show you the importance of sizing positions correctly, and how to break the bad habit of over-sizing:

 No Emotional Attachment

One of my favorite trading quotes: “Trade the ticker, not the company.” One of the biggest issues traders have is an emotional attachment to the stocks they trade. Their attachment causes them to mismanage their positions.

These traders will usually either fail to take profits when they have them or fail to stop out of their positions when the loss was small and manageable. Here is how you can combat emotional attachment in your trading:

How to Scale-Out of Positions to Reduce Greed

Timing exits is one of the trickiest parts about trading stocks. Selling too soon and missing the big move. Selling too late and watching a nice unrealized gain come all the way back to breakeven or a loss. I’ve found the best exit strategy to manage these two problems is to scale out of your positions, which means taking partial profits (½, ⅓, ¼). This video lesson will show you how to scale out of your positions correctly, and manage greed while you’re in a trade:

Revenge Trading: How to Stop Forcing Trades

Every trader’s reaction after taking a trading loss: “How can I make this back”? Most traders jump on the first stock that moves, take another loss, and then end up further in the red. Next things they know, a small manageable red day turns into a day that undoes weeks and months of green. The best traders don’t let trading losses affect their trade selection, and don’t get emotional. Here are some of the best strategies to combat revenge trading:

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What is a Parabolic Stock and How to Trade Them https://bullsonwallstreet.com/parabolic-stock/?utm_source=rss&utm_medium=rss&utm_campaign=parabolic-stock Sun, 10 Mar 2019 18:55:05 +0000 https://bullsonwallstreet.com/?p=54528

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parabolic stock After doing our BPTH trade review, we got a ton of questions about parabolic moves and how to trade them. A parabolic move is a setup you will see frequently in all financial markets.  It offers a great opportunity for traders who understand how to trade them, as they offer the potential to make huge returns in a short period of time. It is also potentially a risky setup if you do not have the right strategy or timing. It is crucial you understand what a parabolic move is and strategies to trade them in order to profit from these opportunities: 

What is a Parabolic Stock?

A parabolic stock is a stock that has seen an exponential increase in its stock price. A parabolic move in a stock is defined by a speed up in price appreciation, relative to prior price action. Let’s stay a $50 stock increased $1 in value every day for 5 days. On the 6th day, it increased $5 in value on that day alone. This would be defined as parabolic move because we have a speed up in price increase relative to prior price action. A parabolic move is a short term fluctuation in price. Parabolic moves will often be followed by a sharp decline in price value. As the price action speeds up, longs become more likely to take profits and short sellers become more likely to enter the market because both know a sharp decrease in price action is coming.  

Parabolic Stock Example

BPTH is a great example of a parabolic stock. Take a look at its daily chart, and notice how it had an exponential increase in value over just a day of trading: parabolic stock You can see how on March 6th it ran from about $7 to $14 a share. That would not be considered a parabolic move because just made a move from $3 to $9 a few days before. This is not a speed up relative to prior price action. You would not want to be shorting into a move like this for that reason. On the 7th, we witnessed the parabolic move take place. The stock ran from around $18 a share to a high of around $73 in just 2 hours!  

How to Trade Them

It is useful to understand a parabolic move from the perspective of long and short seller. A long will recognize when a parabolic move is taking place is to know when to start taking profits on their position. You also want to recognize this pattern as a time to NOT put on a long position. A short seller will want to recognize this pattern as a potential shorting opportunity. If you can time your entry correctly (and find shares to short), you can make a huge return in a short period of time. This is not a strategy I would recommend for new traders to take, as timing the backside of these moves is very difficult. Getting in too early on the front side of these moves can have disastrous consequences for your capital. 

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BPTH Trade Review: Understanding Why Supernovas Occur https://bullsonwallstreet.com/bpth-trade-review-understanding-why-supernovas-occur/?utm_source=rss&utm_medium=rss&utm_campaign=bpth-trade-review-understanding-why-supernovas-occur Sat, 09 Mar 2019 16:18:04 +0000 https://bullsonwallstreet.com/?p=54500

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BPTH Moves like BPTH only come around once or twice a year at most. In case you missed it, BPTH ran from about $7 a share to $73 a share in just 1 and a half trading days. These types of moves are called supernovas. These moves offer amazing opportunities on the way up, and on the way down too if you can locate shares to short. These opportunities don’t come along often, but if you know how to capitalize on them, a few well-executed trades on them can make your whole year’s worth of pay.  You are probably wondering why this happened, how to anticipate these moves, and how to capitalize them. We will answer all of these questions in this article, and in our recent trade recap: https://www.youtube.com/watch?v=5jn5BiHSDYY

Why BPTH Shares Increased 10x in 48 Hours

There is a concept called float rotation which is essential to understand when trading small cap stocks. A stock’s float is the number of shares that are available to trade on the open market. Float rotation occurs when a stock has traded more shares in volume than its total float. This is what happened with BPTH.  Everyone knows that this is a junk company that is overvalued. But its float is under 1 million shares (Shortsqueeze.com estimates its 526,500 shares). On March 6th when it ran from $7 to $14, it traded 72.4 million shares, which means it’s float rotated about 145 times. On the 7th when it ran to $73 it traded 36 million shares. At this point, it just becomes a trading vehicle, and fundamentals go out the window.  There are a low supply of sellers because of the low float.  Once it gets momentum and volume coming in, it doesn’t take much buying power to send it into orbit. There was no major trend break until it had a parabolic, blow-off-top move, which always ends the way: With a huge crash.

All End the Same Way

Some recent supernova examples to study: MBOT, LFIN and DRYS. You will notice the exact same pattern in both of these names as BPTH. Once the tops were in, they gave up more than 50% of its gains in just a few hours. You want to be careful trading these after they have already made a big move up. These stocks will often get halted once they have gone parabolic, and then reopen at much lower prices. The more extended a stock gets in these scenarios, the riskier it is to buy them. Look at its intraday to see how quickly it crashed once the top was in: BPTH When trading a low float name, you don’t buy it with the expectation that the stock will go up 1000%. You want to take your gains after you get a “normal” sized move in your favor, and leave some shares on for the home run. If you hold your whole position for a home run type move like this you will lose 95% of the time.

Scaling Out

The best way to capitalize on these types of moves is to scale out into strength. This means to sell partial shares of your position as the trade goes in your favor. Many of the traders in our BOWS chatroom were taking profits into strength. Don’t go in with the expectation of trying to catch the exact top, especially when it starts getting overextended like it was. Here’s an example of how one of our students traded BPTH: BPTH He took his initial position in the $12’s, and scaled out into strength and held his last lotto shares for the $30’s. He played it perfectly. He sold a quarter of his shares in the 114’s to eliminate some overnight risk on the 6th, and then another quarter in the 20’s when it opened the next day. He held the last quarter of his shares for the home run trade and sold the last at $33.21. He didn’t get the exact top, but he still made a great gain. Notice how he took profits as the market moved in his favor. This is the way to play these. Leave a small portion of your position for the home run, and take partial profits into strength.

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The Best Stop Loss Strategy For Momentum Traders https://bullsonwallstreet.com/the-best-stop-loss-strategy-for-momentum-traders/?utm_source=rss&utm_medium=rss&utm_campaign=the-best-stop-loss-strategy-for-momentum-traders Thu, 07 Mar 2019 23:52:04 +0000 https://bullsonwallstreet.com/?p=54469

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best stop loss strategy Stop losses are a crucial part of profitable momentum trading. Whether you are using a hard stop loss or a mental one, you need to have a strategy for placing it at the correct price level. If your stop loss is too close to your entry price, you will get stopped out prematurely and miss out on the move you were anticipating in the market. If you keep it too loose, you will be risking more money than is needed to find out if the trade will work or not. The best stop loss strategy is not too tight and not too loose. Most day traders have the tendency to keep it too tight because they don’t want to risk a lot of money, but get stopped out and then get frustrated cause they missed the big move.   In order to place it correctly, you need to consider 4 simple factors:

Key Support and Resistance Levels

Both intraday and daily support and resistance by levels should be considered before placing a stop loss. But more weight should be given to daily price levels, regardless of whether you are day trading or swing trading. Ideally, your entries are near strong support levels on the daily chart for longs, and near strong resistance levels for shorts. This will allow you to keep your stop losses tighter and lower risk on the trade. Day trades will, in general, have tighter stops than swing trades. Swing trades are going for big picture moves, while day trades are capitalizing on short term volatility. Before you place your stop loss, you know whether you are taking the position as a day trade or a swing trade. Many new traders make the mistake of not defining what time frame they are investing on before entering a position.

The Stock’s Range

You have to take into account a stock’s intraday range when placing your stop orders to avoid getting stopped out prematurely. So many traders make the mistake of trading a stock like BPTH and use a 10 cent stop. Your risk vs reward is good, but your trade as a 5% of not hitting your stop loss.  Look its intraday chart: best stop loss strategy The stock moves about 50 cents or more on each candle. You would miss all of the moves if you kept a 10 cent stop when trading this. Don’t think about a trade in terms of risk vs reward without considering probability. You want to typically give a 5-minute candle’s worth of room under the support area you are risking off for your stop area for day trades. A lot of traders don’t like doing this because it requires you to increase your risk on the trade and buy fewer shares. But, it also increases the probability of your trade being correct.  

Avoid Exact Support and Resistance Levels

Almost every losing trader puts their stop-loss exactly at low or high of the day. Support and resistance levels are not exact price points, but areas. If you are trading BPTH and the support level you want to play off of is at $10, you should put the stop loss under $9.50 at around $9.45. In general, you don’t want to be putting your stops on half and whole dollar levels, as they are often magnets for the stock price.  

Moving Averages

Moving averages are great areas to place your stop losses. Trending stocks will often use MA’s as support or resistance. For day trades we will often put our stops under the 9 EMA or the 20 EMA. It is best to wait until the moving averages catch up and trade near the current stock price so you can lower the risk you have to put on the trade. Be patient and wait for trending stocks to pull back to their moving averages so you can get a better risk vs reward on your entry point.

Free Trading Consultation

If you want direct feedback on how to improve your trading results, click here to schedule a free trading consultation. We will go through all of your goals in detail, and give you actionable feedback on how you can improve.

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Momentum Trading Definition | Day Trading Terminology For Beginners https://bullsonwallstreet.com/momentum-trading-definition/?utm_source=rss&utm_medium=rss&utm_campaign=momentum-trading-definition Wed, 23 Jan 2019 15:15:37 +0000 https://bullsonwallstreet.com/?p=53685

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Momentum Trading Definition Momentum trading is a style of trading that is focused on trading stocks that have a high probability of making a big percentage move in a short period of time. The style of trading is ideal for day traders, as it offers the potential to make huge returns in just hours or days. It is a style of investing that is based on taking short-term positions in stocks going up and selling them as soon as they show signs of the trend ending. It is a great strategy to short sell stocks, meaning betting on a stock to go down.

Why Use Momentum Trading? 

Day trading and swing trading momentum stocks have the potential to offer huge percentage returns in a short period of time. Successful momentum trading can yield 5%,10%, and sometimes even larger returns on day trades or swing trades. The strategy focusing on trading stocks with high volatility, strong liquidity, and often with a strong catalyst.   One needs strong risk management skills to successfully trade momentum stocks. Occasionally stocks will not move in the direction you anticipate, and you will be forced to take a small loss. If you do not have a stop loss on your positions in momentum stocks, you risk taking a large loss of your capital due to the high volatility. We teach the low-risk, high-reward methods of trading momentum stocks in our 60-day trading boot camp.   

Momentum Trading vs Long-Term Investing

Long term investing involves holding positions for months or years based on fundamental analysis. Typically you avoid high volatility stocks in this style of trading. There is less risk, but there is also less reward. Long term investors will often buy and hold blue chip stocks like Apple, Google, etc in their IRA account.  Momentum stocks have much higher volatility, which allows the trader the potential to make much greater returns in a shorter period of time. It relies primarily on technical analysis, and positions are entered and exited very quickly. If you don’t have quick decision making, swing trading is a better style of momentum trading for you. You will hold your positions longer, and there is less micromanaging.

Holding Period

Periods for holding momentum stocks can be as fast as 2 minutes, to as long as 1-2 weeks. It depends on whether you are taking a day trade or a swing trade. We are trying to capitalize on strong, short term trends in the markets. This style of trading is the most efficient use of capital since you are constantly rotating your money into the stocks that making big percentage room. This is why it has the potential to be a significantly more profitable style of trading than long term investing.

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How To Trade Bounces Correctly- Total Trader Flash Sale https://bullsonwallstreet.com/how-to-trade-bounces-correctly-total-trader-flash-sale/?utm_source=rss&utm_medium=rss&utm_campaign=how-to-trade-bounces-correctly-total-trader-flash-sale Sun, 30 Sep 2018 18:40:08 +0000 https://bullsonwallstreet.com/?p=51893 As momentum traders, we’re constantly on the hunt for stocks that will have major breakouts or breakdowns. Another great strategy that is different from this type of trading is bounce trades. Bounce trades are quick trades, and give you a nice quick gain in a short period of time. However they are not an easy ...

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As momentum traders, we’re constantly on the hunt for stocks that will have major breakouts or breakdowns. Another great strategy that is different from this type of trading is bounce trades. Bounce trades are quick trades, and give you a nice quick gain in a short period of time. However they are not an easy strategy to master, so I made a video lesson explaining how I trade intraday bounces in momentum stocks:

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Use Moving Averages to Time the Bounce

Stocks going on a strong trend will often get extended from their intraday moving averages. Once a momentum stock retraces to its intraday moving averages I look for some confirmation the stock is starting to hold, and then take a position. We focus on two main EMAs for the bounce strategy: the 9 and 20 EMAs. A stock’s distance from a 20 EMA is a great indication of how oversold or overbought a stock is intraday. 

The NBEV trade I used the 20 EMA for my risk. NBEV had just ripped from $4.75 to $5.75, and naturally the stock decides to pullback. It was not an orderly pull back, as it dropped from $5.75 to about $5 in just 4 candles after the move. This is the kind of setup you would use the bounce strategy, instead of a pullback strategy where you would hold shares for a longer period for a bigger move. The lack of the orderly pullback in NBEV made me decide to just take the quick bounce trade off the bounce towards the 20 EMA.

Scale Out Into Strength

A common question about trading bounces is about when is the correct time to sell. It is hard to time the exact bottom and top of the bounce. Your goal should be to just capture the meat of the move, not try to catch tops and bottoms. Usually I will scale out into 1/3s into intraday resistance levels. I got in at $5.19 in NBEV for the bounce trade, and then scaled out into the first pop towards $5.50, a bit more in the $5.60’s, and then sold the rest soon after. It was a quick, 15-20 minute trade. These are not setups you want to marry. Bounce trades are meant to be scalp trades.    

Do Not Average Down

The bounce strategy is a counter trend strategy. This means that you are buying while the stock is in a temporary downtrend on the time frame you are looking at. Remember bounce trades are different from pullback trades. Bounce trades are just scalp trades. For this reason, it is especially important not to average down in these type of setups.

If you end up mistiming it and don’t catch the bottom of the move, you can put yourself in a big hole by buying more at a lower price. When the stock is pulling back aggressively, there is always a chance that the stock may not bounce. A stock can do anything, even when it looks like its getting very oversold. When you are trading bounces, just start with a starter position with a tight stop, and add once you are in the green and are seeing signs a temporary bottom is in.  

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Finding The Best Momentum Stock Of The Day: $SAEX https://bullsonwallstreet.com/finding-the-best-momentum-stock-of-the-day-saex/?utm_source=rss&utm_medium=rss&utm_campaign=finding-the-best-momentum-stock-of-the-day-saex Thu, 27 Sep 2018 14:00:58 +0000 https://bullsonwallstreet.com/?p=51833 Total Trader Flash Sale: Get Annual Memberships To Bulls Vision And Swing Service ($599 Off). No one knows when the next momentum stock will appear in the stock market. You could have three A+ setups in an hour, or you could have nothing to trade for a whole week. But it is your duty as ...

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saex trade

No one knows when the next momentum stock will appear in the stock market. You could have three A+ setups in an hour, or you could have nothing to trade for a whole week. But it is your duty as a trader to put yourself in a position to capitalize when the opportunity arrives. In order to be in the position to capitalize, you have to preserve your physical and mental capital throughout the trading day.

If you hit your max loss at 9:45 AM, you are not going to be able to capitalize on the setup at 10:30 AM. In the video below, we go over how you can get by from taking small losses, while hunting for that gold mine trade that will make your daily goal in one trade. $SAEX provided us with this on Monday, giving us an easy go lucky consolidation setup for an entry on it’s second run up on the day:

Preserving Mental Capital

As a day trader, you need to have a daily max loss to protect your physical capital. But you also have to preserve your mental capital so you can capitalize on your setups throughout the trading day if they present themselves. When you take boredom trades, you don’t just waste your money. You burn your mental capital. Your focus, your energy, and your patience. You become emotional because you know you are taking trades you are not supposed to, and you get frustrated at yourself because you are being undisciplined.  

When you deplete your mental capital, you start making worse decisions. When you are in this state of mind you will need to leave the computer to avoid the temptation of trading when you are having an off day. When you are forced to stop trading for the day, you may miss big opportunities. It may result in your missing an opportunity like SAEX.

Sizing Appropriately

A component of trading momentum stocks successfully is buying or shorting the correct number of shares. You should be assessing your risk based on the quality of the setup in front of you. You should know how much money you will risk before buying or shorting any stock. You should also risk in proportion to what your max loss is. You don’t usually want to be risking your whole daily max loss on a single trade. For example, if your daily max loss is $500, you don’t want to risk $500 on a single day trade (unless the setup is A+ and you have a ton of conviction). Instead you want to be risking 100$-200$ per trade or 1-3% of your total account size. This will give you more opportunity to exercise your edge on a given trading day. 

When you are trading something as thin and illiquid as SAEX, you have to size appropriately so you don’t get emotional. Thinner stocks have bigger spreads, which means you will have bigger PNL swings, and also get more slippage on your entries and exits. You can waste a lot of mental capital by trading too much size on a thinner name like this. It will make your position in the stock a lot more stressful than it needs to be.

SAEX Trade

momentum stock

SAEX didn’t have the flag breakout until 2PM. This setup is the perfect example of the importance of preserving your mental and physical capital throughout the trading day. If you hit your max loss early in the day on Monday, you would’ve missed this move. Day long consolidation plays are some of the best late day setups. But you have to trade well and be disciplined in the morning to put yourself in a position to capitalize on a play like this.

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7 Characteristics Of The Best Momentum Stocks https://bullsonwallstreet.com/7-characteristics-best-momentum-stocks/?utm_source=rss&utm_medium=rss&utm_campaign=7-characteristics-best-momentum-stocks Sat, 03 Feb 2018 12:38:17 +0000 https://bullsonwallstreet.com/?p=48220 Finding momentum stocks is not something that happens by chance. There is a list of ingredients that the most explosive stocks have. When you have four or more of these ingredients in the same stock, you should have this stock at the top of your watchlist. Once you know all of these characteristics, you can ...

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Finding momentum stocks is not something that happens by chance. There is a list of ingredients that the most explosive stocks have. When you have four or more of these ingredients in the same stock, you should have this stock at the top of your watchlist.

Once you know all of these characteristics, you can distinguish between the high-quality setups and the low-quality ones. Knowing these characteristics will give you conviction behind the capital you’re putting at risk because you know you’re in a high-quality setup. Here are 7 characteristics of the best momentum stocks.

1. Low-Float

If you look at all the stocks that have made the biggest movers this year, you will notice that all of them have a low float. A stock’s float is how many shares of the stock is available to trade to public investors. A stock that has a low float, defined as 100 million shares or less, is more likely to make big moves. It is simple supply and demand.

2. Strong Catalyst

Strong catalysts are almost always behind a big move of a momentum stock. The best catalyst is an earnings catalyst, because it has the attention of investors on all time horizons. Other catalysts like FDA approval, analysts upgrades, and other guidance related catalysts are good as well. Some catalysts you want to stay away from are buyouts, buyout rumors, or any other type of rumor that is nothing concrete.

3. History of Making Explosive Moves

If a stock has made big moves before, it is likely to do so again if it breaks out or has big news. You should always look at the past 12-24 months on the daily chart and look for times it has had big green daily candles on high relative volume. If it has happened before, it is likely to happen again. For information about how to play momentum stocks, check out this article.

4. Liquidity

Liquidity is essential for any stock that you trade. If you cannot enter and exit at the prices you want to you will lose a lot of money in slippage. You want to see an average daily volume of at least a million shares on the stocks you’re looking to day trade. Intraday patterns do not play out as well on illiquid stocks either.

5. Clean Daily Charts

You want to be playing stocks that have no daily resistance near your potential entry spot. To the short side, you’re looking for daily charts with no nearby support. Ideally, you’re also away from all the major moving averages, as they can be a reason for your stock to stop going in your favor.  

6. Consolidation on Daily Chart

Stocks get their power from consolidations and bases. Daily chart breakouts are best when the stock is consolidating for a period of weeks, months, or years below or above a certain level. Here is an example of a great daily chart breakout:  

You could see that INTC had previously held up when it gapped up, so when you see something like this gap up on the circled candle, you know there is a high probability of it trending up all day, especially after breaking out of that 3-month long base.

7. History of Holding Gains

You want to be playing stocks that make big moves but also have a history of holding on to their gains. There are a lot of penny stocks that make big moves but never hold up. This is fine to play for a day trade if you take your profits quick, but it is much easier to play stocks that you know that time is on your side. If you’re playing a stock that has a history of holding up you will have much more conviction in the day trade and especially for a swing trade.

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