Momentum trading has never been for the faint of heart. Imagine, buying stocks at the highs… Not everyone is a fan of that thought, but come to think of it, isn’t high relative? When prices are considered high by all kinds of market players, such is the current market condition, momentum trading will prove to be all the more difficult as traders will start to question “follow through”. Will prices follow through on gains the next day? It looks like prices are going to dip first. Should I sell now with a profit then buy back later on when prices dips? Considering the market has barely corrected since its breakout from 4,386 last January 2, is a bigger correction coming and just waiting for everyone to be complacent? Tsk, tsk. Poor short-term players! Always on the look out for the bear to strike. Yes, we are pessimists. But can you blame us for not relying on blind faith or luck in our trading?
The keyword to short-term trading/momentum trading is “uptrend”. Setups I usually look for are those stocks that went up, retraced a little then rebounded from there (See chart below – Circle 1). It would be great if I were able to ride the first breakout (Circle 2) but a breakout from this sideways move does not always assure us that the stock is already trending. Stocks in a consolidation mode are momentum killers so until you’re 100% convinced that the stock has bottomed out, you have to be very fast if you want to make a quick buck. 😛
This setup has proven itself countless of times but there are times when this setup fails. When?, you might ask?. When as stock refuses to correct. Case in point:
Sooo, the uptrend has proven to be stronger than expected. There should be a window of opportunity somewhere. Patience… 😛