February 3, 2011
- in Uncategorized by schooloftrade
Momentum Day Trading Strategies
– Momentum and how we use it in our day trading
o Its an oscillator
o Very easy to learn, but more challenging to use
o We know that when momentum is pointing UP we want to trade LONG
o When momentum points down we want o trade SHORT
o Oversold and overbought momentum = get ready for a price reversal
o I don’t want to buy with overbought momentum
o I don’t want to sell with oversold momentum
o “momentum tells us which direction to be looking at”
– How do we measure the speed of the market?
– The rate of orders coming into the market
– Im not watching the SIZE to calculate speed, im watch the speed of the orders coming in.
– Speed is the best short term market sentiment tool
o The more people trading, the more speed we see, the more volume we get, the better the profits we see.
o Increasing speed is the most important factor
o I really don’t mind trading with RED, Yellow or Green Pace of tape
o Green = fastest and RED = slowest
o I am very concerned about trading with DECREASING speed
o I always look for INCREASING speed to qualify my trade.
– Compensating Factors (dollar, speed, big money)
– What If you see a pattern developing but you don’t have 1-2 of your rules lining up?
– New traders will skip that trade if it doesn’t fit ALL of your rules
– Experienced traders will begin to see that not ALL rules must be perfect, but that some rules were meant to be broken.
– Compensating factors means I see other issues that can give me enough to take the trade without my rules 100% lined up.
– Example: if the speed isn’t very good, and I see big money on the DOLLAR that can give me confidence that the market im trading will react accordingly.
– Waves come in 3’s?
– Our wave patterns seem to always fail on the 4th wave
– Take the first 3 wave patterns, but beware the 4th and 5th wave
– Look for the reversal (wave fail) on the 4th and 5th wave.
– Range Charts and different chart types
– 34 range chart = each candlestick = 34 ticks of range
– 30 minute chart = each candle = 30 minutes of price action.
– If we don’t get any new trading range, if we don’t get new highs or new lows there is NO NEW CANDLE on a range chart.
– Helps me manage risk
– All the candles are the SAME SIZE, so it makes learning easier
– Same size candlesticks = making recognition of the patterns easier.
