Momentum Daytrading - Tricks of the Trade Message Board

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Strategies & Market Trends : Momentum Daytrading - Tricks of the Trade

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To: Ken Wolff who wrote (2032)	10/6/1999 5:49:00 PM
From: Ken Wolff	Read Replies (1) of 2120

When a trader begins to consider market dynamics they must approach it in two phases: 1. Phase one involves tracking the movements of groups of stocks with "likemindedness" or your tracking results (the springboard for consistent profits) will be too confusing to be able to find any predictability. A trader must know what skews the percentages and eliminate them to find the diamonds in the rough. Likemindedness means that given a certain set of circumstances a particular type of momentum will produce similar movements over a short period of time. These predictable movements are what I call "historical evidence" and it is the percentages of behavior predictability over time. For example we are interested in the movements of all good news stocks that climb over 10% at the open over the last few days, weeks and months. And the information we are interested in is: Pre Market gap, Pre Market Volume, amount of selling or lack of selling at the open and the amount of climb off the first bottom and the potential off the next highs and lows as the stock oscillates during the day. To understand the predictability and potential a trader must become familiar with those movements in a dynamic market which means that you should become a student of News Momentum and how it applies to a negative, neutral and positive market. You also have the challenge of interpreting news events and developing reasonable expectations as stocks move under the umbrella of our dynamic market. For example anything unexpected in our market will cause excellent momentum both positive and negative. If a stock misses earnings expectations by 10 cents I will look for a gap down of around 20% and expect value players to buy off the first or second bottom. When the pattern is in favor I will simply buy the first uptick set a stop loss at about 1/4 pt below the buy price and expect returns in line with the average gain for the last week minus 1/4 or 1/2 pt as I always try to leave room for error. I track these patterns I call dumpers and as you will find with all patterns they will come and go in cycles that repeat. When they are in favor they can lead to predictable and dramatic profits for the wise student of stock movements. 2. Phase two involves watching the days behavior at the open to "confirm" what you expect. When the market has been consistently selling gainers at the open to the tune of about 1 dollar (depending on the price) and then running up 2 or 3 dollars the expectations become easier and profits more reliable but on the day that it changes you must recognize the small nuances in the market and get out with a small loss. Foolishly holding onto a cycle that has been established because it has been your bread and butter can be devastating and you should realize "all good things come to an end" in our stock market. You must essentially "trade on your toes" the more volatile and changing the stock market is. I have learned to change so fast that I take few losses and quickly pick up on the next profitable pattern. A good boxer will follow movements so fast that a bob and weave will be met with a solid right hand to the jaw of the unwary opponent. I like to place my hottest stocks together and allow them to lead me during the day. If they move up well I will have a nest of stragglers to pick from should I miss the movements of the leaders. If the leaders don't move as expected then I will back off trading until they show me the bottom potentials or the tops as I will try to go short when opportunity is there. Remember a trader needs room for error and a trade must justify a stop or two. The market may be bobbing and weaving and whacking you on the chin but if you pay attention you can anticipate the next move and land a few of your own. Good trading Ken mtrader.com

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