Wednesday, August 12, 2009

Momo Trading: How, Why and When?

i get that question a lot and doing a video on it would the best way to explain it but my video/screen capture is not working right so i will have to put in writing for now...

Everyday: during the market open and after the market close: I visit

Great website to scan for new stocks and you can give it various criteria to scan. and it's free!

First thing i like to look at is the HEAT MAP:

This will give me a good visual of what is happening in the market. LOts of green(like today for example) and i wanna focus on LONGS, lots of red and in general, i wanna focus on SHORTS.

After getting a good idea of the HEAT MAP, then i click on 'SCREENER' then i go to: SIGNAL drop down menu and scroll to NEW HIGHS and also TOP GAINERS.

The screen will refresh and you will see a bunch of symbols at the bottom of teh page. Move your mouse over each symbol and you see a chart that pops up. Then you need your pattern spotting skills. This is the hardest part of the whole process as it requires some expereince but if you practice long enough, it should come naturally.

What i like to see are:
1. strong volume moves with stocks hovering near their highs of the day(indicating strength).
2. i see to see stocks breaking our or about to break out above a recent consolidation period.
3. a stock that is basing, about to breakout from a solid long base or has already broken out from a base.

I will then visually guage the location of the breakouts. i wanna see moves that are not very extended. Stocks that breakout with strong volume, rarely just show one day of gains and just die. they will show gains and many times, they rest for a day or two and then attack again, stocks stocks attack over and over again.

You do NOT need to trade the big movers the same day you find them, what i usually do is track them for a few days and watch for a nice easy entry on a breakout thru resistance, a bull flag breakout, a narrow range or inside day breakout, or a falling wedge breakout. That's a great tip guys, track the big movers today in hopes of getting in them at a better entry in a few days from now. that's key.

For momentum trading, always be aware of the float, number of shares outstanding, less shjares outstanding(i.e recent IPOs), the more likely the stocks are easily moved either via new buyers of the shares of via short squeeze, where shorts will cover in desperation and at any price creating massive green spikes(momo trading).

Momentum(momo) trading is chasing fast movers. Hyper movers are stocks like: HGSI, JAZZ, GMCR, WYNN.

strong momo is visually seen as long candles with increasing volume. several long candles(up or down) and you are likely seeing momo. see WYNN chart attached.

HGSI chart attached shows what a base looks like or what basing patterns i like to look for: wedges, flags triangles and pennants. I deem these to be the most reliable.

If you decide to trade momo, then you need to forget about watching the percentage gains figures. If a stock that is up 20% on the day scares you, then momo trading is not for you. momo traders do not care about the percentage gains, they just watch the action or movement of the stock. How many times during this rally have you seen a stock that is up 20%, close up 40-50% or more?? happens every single day. Once a short squeeze happens in stocks with low floats for what ever reason, the shorts wanna get out at any price and prices can zoom much higher than most wanna believe(AIG as a perfect exaple the other day, was up 60% on the day, that's shorts wanting to get the F%*K out and momo traders pressing the buy buttons, creating a short squeeze and momo run that left many of us in shock.

short squeezes or momo runs happen on all time frames and even in penny stocks( see RAS chart attached).

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 when monitoring whether to get into a momo run or not, is the VOLUME!!
Volumeis 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 scaning and you see big volume and stocks moving near thir highs of the day or the morning, then watch these very closely, as they are teh best candidates. BIg volume equals more 'predictable' moves.

If you are trading momo, then you worst enemy is CHOPPY MARKET conditions: narrow ranged or low volume days, stocks are a recipe for disaster. AVOID these at all costs. monday and tuesday of this week as a perfect example.

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.

hope this helps.


Anonymous said...

Awesome post Stewie, been following the blog for some months now and always wondered how you would find your set ups, they always look very good. Keep up the good work!


kunal00 said...

Great article on momo trading.You nailed it on the head many people dont really know what it means or how to attack it.awesome

Stewie said...

my pleasure guys.

Blue said...

TAM broke the high today. Did you take a trade on it yet?

Stewie said...

hi blue. yes, we are long TAM from $14.

Momo Stock Trader said...

Awesome post - I will be linking this from my blog.

Admin said...

I expect a kind of pullback for the SPY in the $104-$105 area. See my blog for more information.

Day Trading Futures said...

Thanks your information has helped me very much!

positiontrader said...

One of your best!!

AllenMass said...

Thanks for good information has helped me very much!

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