Trading On Momentum - Is It For You?

Trading On Momentum - Is it for you?

Trading on momentum can be done the easy way, or the hard way. Of course, momentum trading, even the 'hard way', is no more laborious than other types of trading. After the article below, I'll discuss how it is possible to do trading on momentum and still have a life.

Is Momentum Trading For You?

Momentum traders find stocks that are on an upward or a downward swing when they invest in the company. They make money by buying low and selling high or by buying high and selling higher. But as with any kind of investing, there are no guarantees.

Momentum traders must do a lot of work to gather their information.

They must read business papers and the online news sites to see which companies are creating the most buzz. The companies that are releasing new products or that must hold a news conference to explain a product failure are going to be of particular interest because they have the greatest possibility of a momentum run.

As a momentum trader you will need to closely follow corporate earning releases and pay attention to what the business forecasters are predicting. In short, it can be a pretty time consuming endeavor. The good news is that as a momentum trader, you aren't just looking for companies whose stock is doing well. A company whose stock is about to nose dive is perfectly suitable for your purposes.

Once you have narrowed down your selection of stocks your research is not over. You now have to take the time to analyze the stock's EPS earning per share) also known as accelerated earnings. Seeing how well a stock did over the past three quarters is an excellent barometer of what the stock's potential is. You will have to check out the morning equity options pages to determine if there have been an excessive number of written calls out on the company you are researching because the higher number of calls can indicate whether a stock price increase or decrease is anticipated to occur.

You are looking to find a breakout stock so the initial morning trading must be watched very closely to see if there is one stock that stands out. Watch the current bid/ask price and the total daily volumes. If you can identify a stock then it is time to buy. Now this is the most difficult part of momentum trading. You are now going to ride the momentum train and although it can be very exhilarating, it is not for the feint of heart.

Once you have clicked the buy option, you simply have to watch and wait to see how the stock does. Will the momentum continue or will the stock just fizzle out? That is something that happens to the best of momentum traders. Sometimes you pick a dud and the best thing to do is cut your losses and get out.

Do you have nerves of steel? Do you have plenty of time to spend reading the business news, Wall Street Journal and a plethora of other sources from the Internet? There is the potential to make a great deal of money with momentum trading, but you must know and understand yourself before deciding to jump into the fray.

The Rumpled One is the Creator of the Trapline Day Trading Method. Make six figures per annum day trading just one stock. Get his free system of "Fading the Daily Gaps".

Article Source: http://EzineArticles.com/?expert=Mark_Crisp

Trading On Momentum - The Easy (But Very Effective) Way

There are two ways trading on momentum eats up your life. Firstly, the time it takes to go through all the preparation - identifying potential momentum stocks, and then doing all the technical analysis on them. This time can be significant, and for some, technical analysis can be confusing.

Secondly, if you don't know the bigger picture associated with the momentum wave of a stock, you could be missing the best entry and exit points. This means less profit, even on winning stocks, and it may mean you have to trade more often to make up for the lost returns.

And using the approach that's typical of most people who are trading on momentum, there's a bit of uncertainty, a lack of confidence, in their picks. Are you at the beginning of the momentum? The end? In the middle? Indeed, is there truly momentum in what you've picked, or is it a fizzer? Watching what may turn out to be relatively minor fluctuations in a stock's price, coupled with that uncertainty, really opens the doors to mistakes like selling too soon - or not selling soon enough. Fortunately, it doesn't have to be that way.

Of course, you may enjoy trading quite frequently. And if that's the case, trading on momentum done right can really result in significant returns that take full advantage of compounding. But for many, concentrating their investments in a handful of stocks, and riding the wave for weeks or months, is a better match for their personality and lifestyle. This is particularly true if you have a family or a full-time job (or both!).

So, what's the secret to trading on momentum without turning it into a j-o-b? Actually, there's no great secret, it's just a matter of having the right tools available to you, and using the right indicators. Tools, and know-how, that gives you the 'big picture' approach to picking momentum stocks, and overcomes the limitations of technical analysis, which often doesn't spot trends as early as other indicators. These same tools and formulae can very precisely show the best entry and exit points so you can ride more of the wave, and let you set up your trades pretty much on auto-pilot.

Are they accurate? How about AIG, with a 330% gain in 1 month (and a 3000% gain on the call options in just 24 hours). Or YRCW - 100% in 1 month. And RTK, 400% in 8 days. These stocks are not speculative stocks, but good quality 'power stocks' experiencing a price break. This system of trading on momentum teaches you how to identify them, and gives you the proprietary tools to speed up the process. All it takes is 3 points of analysis that take less than a minute. And it works in any market conditions. You can read more about it here.