Momemtum Stock Trading

Momentum can make a stock move quite far in a short period of time and create spectacular money making opportunities for us. You recently received from me an article in which you learned to recognize some of the typical patterns that stocks form when they are moving with a lot of momentum. Sometimes stocks will move well for no particular reason (as you learned in the previous article) but other times it is a news headline that gets these stocks moving.
When a stock moves on news the trade is similar to a momentum trade that occurs for no apparent reason but there are some distinct differences that you need to be aware of. First, the timing is different on a news trade because momentum plays out much more quickly that usual. Second, news creates opportunities with other stocks in the same sector that you may not have had otherwise.
Let’s start with the timing of a news trade. When a stock moves because of a good or bad headline we immediately see an influx of volume as traders react and buy the stock to take advantage of something positive or sell to protect their position. We usually see a lot of movement on the first day of the trade but as more and more people hear the news there can be continued buying or selling pressure for the next day or so. Most reactions to news last anywhere from one to three days and most of the movement occurs on the first day. Because of this you need to be diligent in setting your stops. What we get with a news trade is a great way to trade momentum and bank our profit within a few days. Continue reading