Momentum leaders correct | stockbee

3/25/2014

Momentum leaders correct

Momentum does not last forever and at some stage all momentum leaders tumble or correct. We are witnessing that currently.

Often momentum leaders correct as a group and during that period no leader can be safe. If you are not careful during such period, you can quickly lose bunch of money.

As you gain experience trading momentum leaders over years, you become good at avoiding such periods and unlikely to get caught in such drops. That is the key to thriving and surviving as momentum trader.

Breadth based indicator often warn you of possible risky zone. Extremely positive breadth precedes such turning point. In current correction that was the case.

Besides that other indicators like follow through on momentum stock breakouts and blowout moves also helps you warn of possible risk.

Having traded momentum for 14 years with no down year, I have learned to pay attention to such nuances. The objective in trading is to avoid risky periods and not get in to significant hole.

Trading momentum style is not for everyone. Some can not bring themselves to quickly close open positions and go on sidelines when trouble shows up. Some are wedded to their stops and don't close till stop is hit. In the kind of action you saw in last couple of days  you can quickly lose open profit and also end up losing money on recent breakouts as they fail.

Now in the short run market might bounce back, but will that bounce stick, we don't know. But breadth will tell us if there is sufficient and aggressive buying during the bounce. 

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