Learn to Trade Momentum Stocks

by Matthew R. Kratter

A buy signal is triggered: When stock's 50-day moving average crosses over ("closes higher than") its 200-day moving average; and Only if the stock is currently trading above its 50-day moving average when this crossover occurs. When both of these conditions are met, you buy the stock the next morning when the market opens.

Kdaj kupiti delnico

There are 3 possible signals that it is time to exit our position: If the stock falls 15% from your entry price, sell the stock immediately. This is our emergency stop loss, and prevents a small loss from becoming a big loss. A stock should not fall this much at the beginning of a strong uptrend, and so we do not want to stick around. Many readers have asked me: why such a wide stop-loss? The answer is that momentum stocks tend to be extremely volatile. Even daily moves of 5% or more are not uncommon, and so we need to have a fairly wide stop, in order to ensure that we are not shaken out by the natural volatility of the stock. If the 50-day moving average closes BELOW the 200-day moving average, sell the stock the next morning when the market opens. The trend is now over and it is dangerous to remain holding the stock! After a long trend has occurred, this will be the signal that it is time to take profits. Sometimes a trend will be weak, and the 50-day moving average will close below the 200-day moving average not long after you buy the stock. Exit the stock immediately, take your loss, and move on. If the stock rises 300% from your entry price, exit the stock completely and take profits. Some stocks will go on to rally another 200%, while some stocks will start crashing the next day. I have found that a 300% move is the sweet spot that allows you to capture most of the uptrend and book it as a profit, while not getting greedy and overstaying your welcome at the party.

Kdaj prodat

Most amateur traders sell their winners too early, and hold on to their losers too long.

Sick quote

To summarize, for those hardy souls who want to trade momentum stocks on the downside, there are 3 things to look for: The 50-day moving average needs to close below the 200-day moving average for the stock in question. The stock needs to have had a long run-up. And preferably, the stock needs to show signs of slowing revenue or earnings growth.

Shorting stock

and reading it all the way to the end.