Day Trade Momentum to Maximize Profits with This Strategy

The following strategy is used to get into trades intra-day that have shown a propensity to move in a certain direction. In other words, they have momentum. While this is a day trading strategy, it can be used to enter longer-term positions at an intra-day point where the stock (it also works with other markets) is showing it is continuing to carry momentum in the given direction.

Here is the strategy:

Buy (sell) a momentum stock after it has moved higher (lower) than its morning high (low) after the first pull back from the morning high (low) has taken place. Trades should not be entered in the first 15 minutes of the market open with this strategy. All trades should be in the direction of a longer term trend.

Apply this strategy to stocks that have shown longer term momentum. A list of such stocks can be generated by running a screen for: top (bottom) performers in a sector; 52 week highs (lows); Certain % percentage of above moving average(s); Exchanges top dollar or percentage gainers for the week or month. Any screen that isolates stocks that are in a trend or likely to move should be OK.

Other indicators can be used to give trade signals validity. For longs, additional signals could include: MACD making new highs on moves above old highs; ADX line on DMI indicator rising with the positive line above the negative line; A short term moving average crossing above a longer term moving average; Volume increasing in the direction of the move. Any one or a combination of these tools (or the many possibilities not mentioned here) can be used to further validate a trade signal.

Set stops above a recent swing high if you going short, or below a recent swing low if going long. A major support or resistance level can also be used (these may end up being the same prices as the swing high/lows).

Cory Mitchell, CMT