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Trading Momentum Stocks

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www.CandleStickForums.com

Trading Momentum Stocks

Trading momentum stocks works for two basic reasons. It has been demonstrated that stocks that have been performing well tend to continue to outperform the rest of the stock market. Theorists argue as to whether this phenomenon is due to irrational investor behavior or a fundamental reason that these stocks are better managed companies that continually prosper while others fail. For the trader or investor trading momentum stocks the theory does not matter. What matters is having an efficient system of stock market analysis for recognizing and trading stocks that seem to have momentum.

When trading cyclical stocks a day trader will look for support and resistance zones. Day traders will look at Candlestick pattern formations to help them determine when to buy stock and sell stock. Long term investing dictates that the investor must perform fundamental analysis of a stock. So, why can a trader simply choose a stock that is going up and jump on for the ride? Because very often it works out quite well! Whether the fact that a stock keeps going up in price is due to irrational psychology of investing or a warped psychology of trading makes no difference in technical analysis of stocks. It is the time honored principle of Candlestick basics to let the market tell you what the market will do.

In value investing the investor may often discover an overlooked and undervalued stock with promising prospects and a ridiculously low price to earnings ratio. A small cadre of investors who follow just a few market sectors may have found a stock and may be progressively bidding it up. The successful individual in trading momentum stocks does not really care! The trader or investor trading momentum stocks just engages in trend analysis and follows the trend.

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Trading Momentum Stocks

  1. 1. Trading Momentum Stocks By www.CandleStickForums.com
  2. 2. www.CandleStickForums.com Trading momentum stocks works for two basic reasons.
  3. 3. www.CandleStickForums.com It has been demonstrated that stocks that have been performing well tend to continue to outperform the rest of the stock market.
  4. 4. www.CandleStickForums.com Theorists argue as to whether this phenomenon is due to irrational investor behavior or a fundamental reason that these stocks are better managed companies that continually prosper while others fail.
  5. 5. www.CandleStickForums.com For the trader or investor trading momentum stocks the theory does not matter.
  6. 6. www.CandleStickForums.com What matters is having an efficient system of stock market analysis for recognizing and trading stocks that seem to have momentum.
  7. 7. www.CandleStickForums.com When trading cyclical stocks a day trader will look for support and resistance zones.
  8. 8. www.CandleStickForums.com Day traders will look at Candlestick pattern formations to help them determine when to buy stock and sell stock.
  9. 9. www.CandleStickForums.com Long term investing dictates that the investor must perform fundamental analysis of a stock.
  10. 10. www.CandleStickForums.com So, why can a trader simply choose a stock that is going up and jump on for the ride?
  11. 11. www.CandleStickForums.com Because very often it works out quite well!
  12. 12. www.CandleStickForums.com Whether the fact that a stock keeps going up in price is due to irrational psychology of investing or a warped psychology of trading makes no difference in technical analysis of stocks.
  13. 13. www.CandleStickForums.com It is the time honored principle of Candlestick basics to let the market tell you what the market will do.
  14. 14. www.CandleStickForums.com In value investing the investor may often discover an overlooked and undervalued stock with promising prospects and a ridiculously low price to earnings ratio.
  15. 15. www.CandleStickForums.com A small cadre of investors who follow just a few market sectors may have found a stock and may be progressively bidding it up.
  16. 16. www.CandleStickForums.com The successful individual in trading momentum stocks does not really care!
  17. 17. www.CandleStickForums.com The trader or investor trading momentum stocks just engages in trend analysis and follows the trend.
  18. 18. www.CandleStickForums.com Trading momentum stocks involves generating trading software trade signals by following current market calculations, moving averages, and channel breakouts to understand market direction.
  19. 19. www.CandleStickForums.com The individual will trade stocks that fit a set of criteria and sell or buy stocks based upon a predetermined trading strategy.
  20. 20. www.CandleStickForums.com Because the trader does not care what the underlying reason is for the stock price movement, he or she needs to have a predetermined set of rules for exiting a trade if the market reverses.
  21. 21. www.CandleStickForums.com Risk management in trading momentum stocks includes the current market price, how much money is in the trading account, and market volatility at the exact time of trading.
  22. 22. www.CandleStickForums.com As these factors change, the investment risk management equation changes.
  23. 23. www.CandleStickForums.com This calculation should be part of the trading software.
  24. 24. www.CandleStickForums.com When prices change, the size of the trade typically will increase or decrease.
  25. 25. www.CandleStickForums.com The degree of market volatility will also help determine the size of stock trades.
  26. 26. www.CandleStickForums.com Day trading in momentum stocks, whether the movement is up or down, typically involves the longer term movement of a stock or the "turnaround" of a stock in the market.
  27. 27. www.CandleStickForums.com This type of trading looks for stock market trends, not stock market reversals.
  28. 28. www.CandleStickForums.com When there is a change in price movement the trader needs to have a pre-established strategy that leads to a quick exit from the stock position.
  29. 29. www.CandleStickForums.com However, once the trend establishes in the other direction the trader can trade the stock again.
  30. 30. www.CandleStickForums.com Trading momentum stocks works in both directions.

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