What is Momentum Day Trading?
It is a method of stock trading, where in a trade is made, when the stock is making a trending movement and the trade is closed at the end of the day.
Prices are highly sensitive to news and announcements, crisis, political changes, natural events, opportunities and threats.
When ever such an event occurs there will be increased momentum, that is rate of change in price, This keeps happening now and then.
Taking a trade when the momentum is increasing is high yielding in terms of time invested.
Day trading calls for closing of the trade with in the close of the market for the day. So this momentum trading is an intra day trade lasting for a few minutes or a few hours.
For a given news which side the stock moves is always uncertain. I have seen good results pushing the prices down.
You cannot take a trade just by listening to news. You have to wait to see which side the market moves. You have to take the trade only on confirmation of trend of the market.
So trend analysis is done to determine whether a stock is in an uptrend or in down trend. In a day trade time available for you to analyze is short. So you have to train yourself to habitually make fast and right decision. Certainly it is challenging to both beginners and old timers.
Always buy in an a bullish market and sell in a bearish market. This is the first step and is very important step because being in the wrong side of the trend when the momentum is picking is going to be disastrous.
Then recognize the momentum by using momentum indicators. My favorite momentum indicators are ADX, MACD & MACD Histogram, RSI and ROC.
With experience you gauge the momentum by looking at the slope of the Moving Averages also.
By technical analysis of charts patterns and study of indicators, one can enter the trade in the early phase of the momentum.
Momentum usually does not last longer. Exit the trade at the target price or when the momentum declines.
Mid cap stocks will exhibit a better momentum compared to large cap stocks.
There are instances where a trade is complete, that is trade entry and profit booking are over in less than a minute.