The Most Important Factors In Successful Momentum Trading
Every day some stocks are moving dramatically higher while others languish. Every day after the close we see these stocks appear on “movers of the day” lists and in reports on stocks that are up 5%, 10% or more over the past few days. A lot of good that does – AFTER the stock has already made its move!
How can traders see these stocks BEFORE they make their moves higher? What are the factors that separate the stocks that momentum traders should be searching for and trading from the stocks momentum traders should avoid?
In his presentation Tuesday afternoon at 1 p.m. Eastern, Larry Connors will present an overview of the 5x5x5 Portfolio Method, a momentum strategy for trading stocks. The 5x5x5 is an approach to momentum trading in stocks that has produced annualized returns of 118% since 2001. It has five, simple proprietary rules and, in just five minutes a day, can help you spot and trade some of the strongest, short term moves in the market.
With more than 70% profitable trades since 2001, the 5x5x5 momentum strategy is alternative to many other approaches to trading momentum, focusing on the most important factors that make it possible for traders to consistently find and trade the right stocks at the right time.
- Knowing which stocks are the right stocks. When trading stocks to the upside, traders should stick to the stocks that are in longer-term uptrends. Stocks that are moving in longer-term down trends, as we have seen over the past year, often tend to keep moving lower.
- Knowing when the right stocks are on sale. Finding the right stock is key. But knowing when that stock is being put on sale is truly makes for successful momentum trading. Research backs up the idea that there is an edge for the short term trader in buying stocks after they have pulled back rather than at their highs.
- Knowing when to sell on strong demand. What retailer doesn’t want to sell his or her product when there are lines around the block waiting to buy? As a momentum trader, you should be no different. Exiting on strength is another edge that traders need to take advantage of. Don’t let greed get the best of your trading. As the old trading adage goes, when the ducks are quacking, feed them!
These basic rules can make it possible for momentum traders to take advantage of the right edges in the right stocks. More importantly, they allow traders to have a consistent approach to the market, helping traders understand every day what stocks and edges they are looking for and — importantly in these volatile times – how to stand aside when those stocks and edges aren’t there.
If you’re interested in learning more about momentum trading, click here to find out about the 5x5x5 Portfolio Method created by Larry Connors and Cesar Alvarez, and Larry’s presentation Tuesday afternoon at 1 p.m. Eastern. As a momentum trader, you won’t want to miss it.
David Penn is Editor in Chief at TradingMarkets.com.