How to Momentum Trade Stocks
Momentum trading of stocks is for the intermediate or advanced trader. Momentum trading of stocks is a spur of the moment trading strategy. Utilize trading tactics to project market inertia and weigh the momentum of the trade. Remember, you need to have an understanding of the stock market before proceeding to learn momentum trading.
- Difficulty:
- Challenging
Instructions
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1
Running which ever trading software you use, open up the charts to view daily signals and weekly signals. Enable the MACD Histogram. Keep in mind that the histogram is an indicator of the MACD, and neither are immune to lagging. Resist the temptation to buy right when you see a peak on the charts.
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2
Resist early entry. Watch the daily signals that reflect the weekly signals. Ignore the signals on the daily chart that do not agree with the weekly signals. What you're looking for here is essentially the repetition of the longer trend rather than the shorter fluctuations on the daily charts.
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3
Read the 9 day EMA chart. If you see a greater number than the nine day reading, that will indicate the value on the histogram of the MACD to be positive. If you see a lesser number than the nine day EMA, then the result will be a negative MACD histogram reading.
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4
Identify peaks and troughs on the charts. If you see two or more peaks or troughs, then that could indicate a good time to buy or sell. At this point you will read the histogram. The histogram will project the next movement of the MACD. Keep in mind that the MACD and the MACD histogram are only indicators, and are not precise indicators of real time movement.
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Decide whether or not to exit. Sell your stock when you see the MACD diving at a rate quicker than the EMA indicator. This is a sign of a bearish momentum. Always go back and look at the weekly chart to see if there is a match for the ups and downs on the daily chart. If there is a match more than once, then pay attention to the trend. Always give more weight to the weekly trend over the daily dips.
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6
Stick with your exit strategy. If you are trading with both the EMA and MACD going up on the charts, the very second you see either indicator start to turn the opposite direction, you must close out quickly. Don't wait for the signals to go back up. Close and take your earnings. With this having been done, you've mastered your momentum trading.
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Tips & Warnings
Ignore the occasional peak or trough on a chart. Only move with significant ups and downs on the chart.
