A complete momentum burst trade example

Stocks move in momentum bursts of 3 to 5 days. These 3 to 5 day momentum bursts can be explosive often producing 8 to 40% moves. Swing trading these moves offer you an opportunity to participate in explosive part of the move.

These kinds of moves are frequent and in a year offer you several opportunities. The post: How to identify good momentum bursts and make millions details the essence of the setup. The post lead to some comments and discussion on stops and exits.

By its very nature this is 3 to 5 days trade. Om entry day the only reason for entry is that we believe the range expansion will lead to follow through. If that does not happen and stock revisits entry day low, the range expansion signal has failed.

Entry in this kind of trade happens as soon as stock shows up in my scan. That can be anywhere from market open to just before close. The stop is low of the entry day as this is momentum burst trade.

Exit in this kind of trade is based on time exit and profit exit. Because by very nature this kind of trade is 3 to 5 day duration, I am looking at exit on 3rd , 4th or 5th day. Not only that but we also know profits in this kind of trade is going to be 8 to 40%. So if a stock says goes up 20% in one day after entry, I sell part of the position and put a very tight stop on rest of the position to ensure profit does not vanish.

Most of these kind of trades work instantly. For example currently I have YY trade open. The trade already is up 10% plus in 2 days.

I will hold this trade for 4 to 5 days , but at the same time now my focus is to ensure this trade does not end up loss making and I exit it with at least some profits. Accordingly stop is adjusted to protect open profits.

Swing trading momentum bursts is a low risk strategy. You can keep your draw downs very small and compound your money. 

No comments: