When you’re just starting out with day trading, you’re doing all you can to learn about this fascinating way to make money, whether it’s researching online or reading the best day trading strategy books.
For instance, you know that day trading is about making money off small price movements in highly liquid currencies and stocks, and that all your trades are done within a few hours, from the open to the close of the markets. To day trade in the U.S., you’ve learned that you need a trading account that contains at least $25,000, and that in order to limit your losses, you should stock a stop-loss amount that is 1-3% of your total account.
You have also discovered that in order to succeed with day trading, you need to employ day trading strategies. One of the most common strategies is stock momentum, which is easy to learn and understand and can ensure you make money on the day trading markets as long as you follow its principles.
What Is Momentum Trading?
Momentum trading involves following a stock’s recent trend, whether it’s going up or down and then making moves based on that. Stock momentum theory tells us that the stock is likely to continue in that direction, and momentum investors can take advantage of the trends to make money. In short, momentum trading is where you buy securities that have experienced high returns over the past three to a 12-month time period, and you sell securities that have not performed well during that same time. Investors using momentum trading strategies are taking advantage of behavioral missteps in other investors. These actions include over and under reaction (such as selling stocks as soon as a company gets some bad press), confirmation bias, disposition effects, and herding. At the end of the day, the entire purpose of stock momentum trading is to buy high and sell higher.
Why Momentum Trading Is Important
Learning momentum is simple and is a good place to start with day trading. Stock momentum trading is important for day traders because it can help them avoid losing money on their trades. It involves capitalizing on market volatility by taking short-term positions in securities that are going up and then selling them off as soon as they show signs that they are losing money. It’s all about taking the money and running, which can ensure you don’t lose money on volatile markets.
Getting Started with Momentum Day Trading Strategies
Once you’ve saved up enough money for your day trading account, opened an account, and established your stop-loss, you can begin trading on stock momentum. Here are some quick tips on how to get started with momentum day trading strategies that work.
- Follow the news. Subscribe to alerts on your phone and check it constantly when you’re day trading. News is usually going to cause a spike or a drop in momentum, and you need to be ready to take action once news breaks. Check out the news on Nasdaq for starters.
- Learn how to read day trading charts. The best day traders out there have access to the top charts and analysis, so you’re going to have to learn how to interpret both in order to keep up and make sure are making the right moves with stock momentum
- When you’re day trading, don’t take your eyes off the screen or else you could miss even the most minute price movements. Perhaps this means trading only one or two hours per day if you can’t concentrate for longer than that. You need to be high functioning when you are trading because gaining or losing money can take only a matter of seconds.
- Though day traders do have the option to keep trades overnight, this is not recommended when trading on stock momentum. In the course of an overnight period, a stock price could dramatically rise or fall, and you will be in a tough position when you wake up in the morning. Aim to sell your trades before the close of the market.
- If you’re trading on stock momentum in a bear market, you won’t make as much profit because investors are more cautious. You may want to hold off on using momentum day trading strategies until a bull market emerges.
- Watch out for commission fees from your broken when trading based on stock momentum. Since you’re going to be doing a lot of trades, those fees could end up eating into your profits very quickly. Look for brokers who offer low commission trades.
Continuing Your Education on Stock Momentum with the 10-Minute Millionaire
Now that you’re determined to start day trading on stock momentum, it’s time to keep up with the latest in day trading and investing news. You can easily do this by signing up for The 10-Minute Millionaire, where you will learn more day trading strategies to help you score build and begin building your wealth. All you need to do is check your inbox for emails from The 10-Minute Millionaire, take the advice you read, and apply it to your own day trading tactics. You will learn the scoop on stocks from New York Times bestselling author D.R. Barton, Jr., a trusted financial expert. If you’re ready to win with day trading and transform your bank account, make sure you subscribe now.