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Key Takeaways Momentum traders prioritize existing trends, using volume, price action and catalysts
Strict criteria and preparation enable fast, disciplined execution in high-speed markets
Success depends on risk management, pattern recognition and continuous post-trade learning
Trend watching is big business. “Influencers” try to start trends or at least jump on them early. Day traders are just as passionate about spotting trends, but our timeframe is very much shorter, as in which stocks will take off today.
Some traders don’t focus on trends: They’re known as “counter-trend” traders. These folks will do fundamental analysis by scrutinizing financial reports and may conclude that a stock is in for a beating, so they short it. Others will wait for a stock to drop low enough that they conclude it’s a bargain and should soon turn around. They hope.
I’m the opposite — I’m a momentum trader who wants to see that trend already rolling before I jump in. I focus on technical analysis. On any given day, there is no shortage of potentially trending stocks; social media and trading chat rooms are full of tips. We know that most of them never pan out. So what have I learned after taking more than 25,000 trades about how to identify stock trends worth my while? I have three parts to my answer.
1. Pay attention to the conditions that make stocks ripe for significant trending
Sports teams will scrutinize “film” about their upcoming opponent in a playoff game, looking for their habits and quirks. In a sense, I do the same thing with stocks.
Take “former runners” for example. These are stocks that in the past have experienced massive momentum, ripping up 300%, 400% or more in a very short time. I make note of these stocks because they made an impression on many traders’ minds: Some traders made money and want to do that again; others didn’t hop on the bandwagon soon enough, have FOMO now, and want to be extra ready this time around. Either way, the result is that former runners are highly susceptible to breaking news.
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