How the Intra-Day Momentum Method can Help You Make Better Trading Decisions

How the Intra-Day Momentum Method can Help You Make Better Trading Decisions

The Intra-day Momentum Method was designed to help determine the best way to trade a particular stock / ETF, whether it is trend-following or reversion to the mean, in connection with a low-to-mid frequency intra-day trade.  In order to determine which method had worked best over time, I created an algorithm that would find a measurement in price from the Open where the Close of the day had historically been above this level for Longs or below this level for Shorts approximately 50% of the time, for many stocks.  While this is by no means perfect, it certainly gives a trader a method for selecting stocks and entry points that have a reasonable chance for success.  The Method was developed to adapt to market changes rather quickly as it takes into account price-action, patterns, and volume.

The most important factor that one must take into consideration is that not all stocks / markets have the same tendencies.  By designing a more scientific approach to trading, a methodology based on ‘measured moves’, gives a trader or researcher, the ability to identify historical tendencies across many markets.  The Intra-Day Momentum Method gives the trader confidence in his trade decisions by using statistical analysis of price patterns and can be used as a guide to help a trader with Trade Entry, Trade Exit, and Risk Management.

Intraday Momentum Method

This is a sample of the Intra-day Momentum Level Trading Research.

Daily Range

In order to determine what stocks to trade on a daily basis, the overall daily range is the starting point for evaluating which stocks to trade.  When analyzing stocks / markets that do not move a reasonable distance in price (less than 1.00 from Low to High), I have found these methods are not of much help in determining daily direction.  The historical probability of a Close above or below the calculated Momentum Levels tends to diminish considerably, to approximately 45-47%, in many instances when dealing with stocks with a low price range intra-day.  This Method is still helpful in determining which side of the Open, above or below, the Close of the day has been on.  However, when the range is tight, there is simply not enough price movement to work with.  Stocks that have very small ranges do not have the propensity to establish a sizeable trend on an intra-day basis.

Daily Direction for the Intra-Day Trader

Once a Momentum Level has been reached, either Long or Short, the ‘low-to-mid’ frequency trader would also benefit from looking for trade opportunities on the side of the Momentum Method Indication for Daily Direction.  After Daily Direction has been determined, historically, the Close of the Day has been on the side of the Open of the Daily Direction Indication of that day, approximately 75-80% of the time, for many stocks / ETFs.  This gives the trader, many opportunities to look for entries using many different techniques for trade entry.