how to trade with the Momentum:

Now, i am sure every trader has his/her definition of momentum or MOMO trading. Here’s mine:

For me it’s simple: VOLUME VOLUME VOLUME!!!

Every day during the trading session and after the market close, I scan for stocks that:

1. Hit new 52 weeks highs.
2. Percentage Gainers.
3. Unusual Volume Gainers.

These 3 scan criteria should point you to where the MOVERS AND SHAKERS and pretty much the strongest stocks are.

What i like to see:

1. strong volume moves with stocks hovering or basing near their highs of the day(indicating strength).
2. i love to see stocks breaking our or about to break out above a recent consolidation period with big volume (pennant, flag, wedge etc).

3. a stock that is basing, about to breakout from a solid base or has already broken out from a base.

4. seeing numerous days/bars with big volume makes me very excited about a stock prospects., especially if i can spot a pattern or base.

Examples of strong Bases or Patterns:

In the APL below: notice how the stock is hovering and basing near highs with volume pattern mounting: Breakout imminent!

In The NEP chart: Check out the volume leading up to the breakout within this SOLID BASE! You will not see a more solid base! This is why when i discovered this NEP chart, I was so wildly bullish on it.

In this CAAS chart: You needed an experienced eye to spot a very discrete ‘higher low’ in the making. Check out the volume the past few days that came into this pattern: This stock was gonna explode and it did!

Here are what the the same charts you see above looked like several days later!

APL: explodes!

NEP Explodes!

CAAS Explodes!

With momo trading, you wanna buy high and sell higher, ALWAYS placing and executing around reasonable stops however!

The very first thing you need to look for when monitoring whether to get into a momo run or not, is the VOLUME!!

Volume is the fuel that drives stocks, no volume then you are stuck in choppy, shaky stocks that will deliver poor results as they are hard to read and trust. When you are scanning and you see big volume and stocks moving near their highs of the day or the morning, then watch these very closely, as they are the best candidates. Big volume equals more ‘predictable’ moves.

Always be aware of the which stocks are the most heavily shorted, watch volume, watch for pattern breakouts or base breakouts or breakout from small consolidations.

Heavily shorted stocks have ‘rocket fuel’ in them as nervous shorts run for cover en mass. Trade against these guys, they like to print big green candles when they are wrong.

Over my many years of trading, using this technique has by far yielded the BEST results for me.

I hope it helps you in your trading!

Practice makes perfect!