PostHeaderIcon Trading On Momentum

Stock Trader

There are different approaches that stock traders employ in analyzing and deciding which stocks to buy or sell. One approach is that of using a momentum stock trading system. This method focuses on looking for stocks that are moving in one direction on a high volume. Momentum traders usually try to hold onto stock positions for a few minutes, a few hours or even a whole trading day. This will usually depend upon the rate of stock movements or when it changes its direction.

This method of trading may seem risky for most traders- trying to ride on the momentum of a rising stock and then trying to sell it in time when it begins its descent. Most traders would prefer holding on to a stock that is showing promise but has not yet begun its rise as the most attractive option. But momentum stock trading can be used in order to gain certain advantages in a volatile market and may help provide traders with considerable gains on their deals.

Typical Momentum Trader Tactic

One of the important factors that momentum trading depends on is a stock’s price action. Looking upon a stock that is going on a rise is something that momentum traders are attracted to. Momentum traders look for stocks that has generated quite a buzz or that which experts say will provide possible rise in prices as well as volume during the length of the trading day. He gets all these stocks in mind and then looks out for them on the next trading day.

On the next day continues to check up on them and then choose the strongest stocks in terms of price movement as well as volume. The trader then tries to look up the charts of these stocks and look for sustained downward or upward momentum. Once this is determined, the momentum trader then tries to get hold of a particular stock on an upward momentum. Once the stock is bought, the excitement for the momentum trader begins.


Once in the position, the momentum stock trader then keeps his eyes glued on the stock indicators to monitor the movement of the stock. And since the stock is on an upward momentum, the stock trader is trying to look for the saturation point, that period where the upward swing may seem to be reaching its topmost level.

The saturation point may not necessarily be the top of the upward momentum; it can merely be a sign that the stock is nearly reaching the top. This can be indicated by thinning or slowing bids at a certain market price. Once the saturation point is determined, the momentum trader then sells his position in a short stock sale and takes in his profits.

It may seem easy, but breakouts and the sustained upward momentum of a stock is actually hard to predict. Therein lies the risk in momentum trading. Sometimes a momentum trader finds himself in a position where the stock is on a downward momentum despite positive predictions. In this case, the wise momentum trader usually sells immediately.

The momentum trader would rather take a small loss early than hoping for a reversal sometime later. The momentum trader then tries to look for other stocks out there on the upward trend. Such is the tactic that momentum trader makes use. It might be a risky proposition, but careful investing using such a method can bring attractive gains for the trader, mostly on the short term.


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