How to profit from momentum burst | stockbee


How to profit from momentum burst

Stocks move in direction of range expansion. This is the basic tendency of stock moves. A range expansion triggers a fast 3 to 5 days momentum burst.

The momentum burst can be very profitable as the stock makes a quick 8 to 40% move in 3 to 5 days. There are hundreds of such moves and to trade them you just need to use a simple range expansion scan.

UVE is a recent example of one such trade. UVE went up around 30% in last 10 days. It had an orderly pullback of 9 days and then a range expansion move. After 2 days of pause  it had another range expansion. That was the day I entered. I was out in few days with 11.38% profit.

These kind of short term momentum burst can happen as part of continuation move like in the case of UVE or they can be also part of bottoming move. In recent weeks number of stocks had these kind of range expansion near their bottom and from that they went on to make 8 to 40% move in few days.

To trade these kind of moves you can take two approaches.

One way to trade these is by waiting for a breakout and then react to the breakout. For that you just need to run a well designed range expansion scan in any trading software and then select breakouts to enter. Once in trade you need to manage it to ensure profitable exit. Ideal hold times on these trades are 3 to 10 days. If you overstay you end up giving up lot of gains. Selling in to strength or moving stops to protect open profit is key.

Second way to trade these kind of moves is by using anticipation. Anticipating these kind of breakouts on momentum stocks can allow you to enter much earlier than waiting for a breakout. In order to find anticipation candidates you need to narrow your universe to stocks with established momentum or 65 days or 126 days period. That way you will have very manageable set of stocks to look at. From them you have to identify candidates ready to breakout. After that one can enter them ahead of breakout or on breakout day early using a resting order or price alerts.

Because these kind of momentum moves happen hundreds of times in a year, you can find enough opportunities to compound  money without taking large risk. The sheer number of moves like this in a year also makes it possible for new traders to learn these kind of swing trading techniques easily.

If you are serious about making money trading and want to shut out market noise look at developing an expertise in trading range expansion moves. 

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