How to Identify good momentum burst and make millions
January 4, 2014
Momentum Burst Basic Logic
Your objective should be to become an expert in this setup. If you do that you can make millions of dollars over your trading life time. In a year you will find 500 to 1000 such setups on bullish and bearish side. This is one of the setups I use daily along with other setups.
Stocks move in momentum burst of 3-5 days
Stocks move in 8 to 40% bursts
Stocks move in 5 to 25 dollar burst if priced higher than 40
For more details see this post on momentum bursts: Stocks move in short term Momentum Bursts
How to Identify good momentum burst
A good momentum burst candidate will have following characters:
- The day prior to range expansion day will be narrow range day or negative day
- The stock will have 3 to 20 days consolidation prior to range expansion day
- The stock will have series of narrow range days prior to breakout
- On breakout day volume is higher than previous day
- On breakout day stock closes at or near its high for the day (preferred)
- Stock is not extended. First or second breakout at start of an up trend is preferred.
- Stock should have linear and orderly move
- A very volatile stock exhibiting drunken man walk kind moves should be avoided
- Low float below 25 million is good. Below 10 million float leads to explosive moves
- Low priced stocks (below 5 dollar) tend to make very explosive moves of 40% kind in 3 to 5 days.
Become an expert in momentum burst setup
Identifying good setup is a skill developed through practice. If you go through 5000 to 10000 old setups and identify good from bad and see what worked and how it worked, you will gain expertise in identifying and trading these setups in real time.
More time you spend going through past history, more efficient you will become in instantly identifying setup in real time without trying to remember the rules. Automaticity or procedural memory is developed through solved examples and practice.
Go through hundreds of setups daily. Try and identify good setups on them. Study what was the pre breakout situations. Study how it acted post breakout. Find out how much % move it made in 3 to 5 days post breakout. Study failed breakout.
Your objective should be to become an expert in this setup. If you do that you can make millions of dollars over your trading life time. In a year you will find 500 to 1000 such setups on bullish and bearish side. This is one of the setups I use daily along with other setups.
Hi stocbee, love your posts! Just curious on these momentum burst plays, when do you enter a trade, what time frame do you look at and when do you get out/stop out?
ReplyDeleteThank you
what is the indicator on the bottom
ReplyDeleteyou are using for breakout signal?
I enter on first day of range expansion. I run scan through the day and enter as and when stock shows up in it and meets my criteria listed.
ReplyDeleteI exit on third to 5th day depending on setup or exit partial position and trail remaining part.
The entry signal scan is c/c1>1.04 and v>v1 and V>100000.
SO do I get it right, you enter based on a daily chart and don't go into smaller time frame for execution?
ReplyDeleteAnd if need to stop out, do you stop below the daily candle (the first one that pop out of range extension)?
Yes and yes.
ReplyDeleteThis comment has been removed by the author.
ReplyDeleteCSII did not meet my breakout criteria in last six month.
ReplyDeleteHi,
ReplyDeleteWhat are your criteria for those high price stock because it is not very common for them to have +4% breakout?
For them I look for c-o>=.90 and v>100000
ReplyDelete"For them I look for c-o>=.90 and v>100000." What is c-o>=.90?
ReplyDeleteClose-open is greater than 90 cents and volume greater than 100000
ReplyDeletecan you pls answer my question?
ReplyDeleteRugulach it is the entry signal scan c/c1>1.04 and v>v1 and v>100000. When stock meets the condition it shows it in green.
ReplyDeleteRugulach it is the entry signal scan c/c1>1.04 and v>v1 and v>100000. When stock meets the condition it shows it in green.
ReplyDeleteRugulach it is the entry signal scan c/c1>1.04 and v>v1 and v>100000. When stock meets the condition it shows it in green.
ReplyDeleteRugulach it is the entry signal scan c/c1>1.04 and v>v1 and v>100000. When stock meets the condition it shows it in green.
ReplyDeleteRugulach it is the entry signal scan c/c1>1.04 and v>v1 and v>100000. When stock meets the condition it shows it in green.
ReplyDeleteRugulach it is the entry signal scan c/c1>1.04 and v>v1 and v>100000. When stock meets the condition it shows it in green.
ReplyDeleteDear Pradeep,
ReplyDeleteIn your selection process, how would you shortlist your candidates? I have noticed that the examples you have provided are usually at multi-months highs. Would you consider range expansion for a stock that had fallen from a previous high but experiences a range expansion?
I'll use a crude example - DHX. The stock fell hard last Nov but is presently flat. Assuming that it turns up on your screen with a range expansion to the upside, would you consider the trade?
While I prefer stock with established momentum, I also will take stock that have corrected if they meet my setup definition. As this is just a short term swing trade any good quality setup is ok for me.
ReplyDeleteHi,
ReplyDeleteDo you found equally succesful stocks above and under with their 200 day moving average?
I mean wouldn't change the success rate the bull/bear phase of the stocks?
Thanks,
Daniel
Hi,
ReplyDeleteDo you found stocks equally successful above or under their 200 days moving average?
I mean wouldn't change the success rate the bull/bear phase of the stocks, when they would
breakout? ( I am interested in the long(bull) side only )
I have found stocks above 65 day <MA better on long side. 200MA is not much helpful as stock can move big move before going above 200MA
ReplyDeleteThank you for reply,
ReplyDeleteYour initial minimum filter is 4% gain for stocks, do you have an initial maximum
% gain for stocks what you qualify too much for a potential further gain? Say an ideal setup
with a low float stock which already gained 15% on the expansion day would be ok to trade or would qulaify "too far" ?
it depends on price. low priced stocks below 15 dollars can have 205 b/o and still are good buy. for stocks above 15 I prefer a move below 20%
ReplyDeleteHi,
ReplyDeleteLove your posts, very informative and insightful.
So momentum bursts are a structural phenomenon of the stock market. Therefore; my question is, are they present in other markets as well, say, forex for example? A freind showed me how currencies move in successions of three (or so). Was I likely seeing a momentum burst?
They happen in all markets
ReplyDeleteIs your 65 MA a SMA or EMA?
ReplyDeleteSma
ReplyDeleteHi,
ReplyDeleteI'm having issue with the formula in TC2000. It's the 1,04? I got the message Error in formula: Unexpected comma-,04 and v>v1 and v>1 AT position 7. If I put only 1, the formula have no error. It's look like it does'nt take the , or the . in 1.04...
Thanks
There is no comma in that sca. If you are in Europe you can get error. In that case make 1.04 104/100
ReplyDeleteHi Pradeep,
ReplyDeleteCan you use this strategy with options? If so, do you give educational content on your members site regarding using options?
I can't trade stocks because of 0.35% taxes I have to pay per trade.
Thanks
I am not an option expert
ReplyDeleteHi Pradeep,
ReplyDeleteThank you so much for sharing this knowledge about 4% and $ b/o technique. I found it very useful.
I've read in your posts that you exit positions between 3rd and 5th depending on the setup but sometimes you exit parcial and trail the rest.
Can you explain more detailed what technique do you use to determine whether exit at third day or fifth? I've been surfing through your texts but I wasn't able to find such explanation.
And also, how do you determine that a setup is not working? Do you wait till being stoped out or do you use any anticipated cancelation?
Thanky you again.
Hi Pradeep,
ReplyDeleteThanks for such awesome content. I just wanted to know, you said somewhere in comments that you enter on the breakout day, but you have said in the post that the close should be near high. What if the close is not near the high, do you exit the very next day ?
Thank you again.
Hi Pradeep,
ReplyDeleteMany thanks for the detailed Analysis.
How to apply the formula while trading Indian Markets?
Thanks
Can this help in Indian stock market?
ReplyDeleteHa Suresh, I have tried the 4% b.o . It is working
ReplyDeleteHi Pradeep, im wondering if u can help me with a problem please?
ReplyDeleteI've been trying to create the 4% momentum burst scan both copying it from your youtube and from the link i found in the comments, and creating it as a new formula in tc2000 but tc2000 says it doesnt recognize the formula, and ive trippled checked 4 times that i have the exact same formula as u described it in your video but it doesnt work.
maybe im just stupid and missed something or i have the wrong version of tc2000 or something
hi, thanks for the article, is it possible to repost the picture? thanks a lot
ReplyDeleteGreat post, really an edge when the market environment is positive. Thanks for sharing 🙏
ReplyDelete