In one of my earlier articles, I taught you to trade momentum that happens following an earnings announcement. In this brief article, I'm going to go into some of the chart patterns we can use to trade momentum that's unrelated to earnings or news.
I am going to show you tips on how to combine information and chart patterns to trade momentum. But, before I get too ahead of myself, let me go over what momentum is and why I trade it.
The very first step to trading momentum is that you must find a stock that has the capability to move rapidly and far. These stocks typically have a dollar to two dollar average daily range throughout normal trading.
When the momentum picks up, they are able to trend twenty to thirty points or so in a matter of a few months. From time to time this momentum is sparked by news announcements such as earnings or perhaps a brand new drug approval and at times it's just a stock that becomes heavily purchased or sold by institutions.
At any rate, as soon as you learn to read technicals, you are going to be able to spot the building momentum in time to benefit from the big move.
Several of my most lucrative momentum trades took place not because of any news, but just because the chart started to show signs of big purchasing pressure or big selling pressure. I look for things like breakouts, long candle bodies, and a variety of candle patterns combined with the 6 indicators I use to signal a momentum trade.
The most effective way I can show you how to trade momentum is to show you several of the patterns that I and other people in my Traders' Talks have recently traded.
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The initial thing to keep in mind with momentum is that once a stock has made a big momentum move, you know it has the capacity to do it again in the future. It's going to most likely take a breather for a while and it might not move in the same direction, but the momentum will more often than not pick up once more.
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