Momentum Trading Written Trading Strategy for our Trading Course Students



Momentum Trading Strategy

The Momentum Trading Strategy is for trading stocks that have just made a quick move up intraday due to news or technical breakout. These quick moves must be associated with very high relative volume.  Momentum Trades will almost always mean buying the first and second pullbacks on both the 5min chart, and the 1min chart.  We find these stocks by using HOD Momentum Scanners.


Stocks to consider:

Only stocks trading on high relative volume.
These may be stocks that gapped up and are continuing to trade on high volume during the day.
Often Times Gap and Go stocks will turn into good candidates for Momentum Trades, like the example of $KOOL above.
Stocks may have intraday news that is causing massive volume to come in (earnings release, activist investor stake, etc)
Always look to buy the 1st pullback or the 2nd pullback on the 5min chart, and the 1st and 2nd pullback on the 1min that corresponds to each fresh 5min breakout.


Chart Patterns:

For momentum trades I look for the Chart Patterns that give me the best opportunity to get a profit with minimal risk.
These include: Bull Flags, Flat Top Breakouts, Red/Green Moves, and Possibly 9ema pull back or VWAP Pull back.


Technical Indicators:

I only buy Momentum Trades that are ABOVE the 20ema on the 1min, and the 9ema on the 5min.


Red Flags:

Don’t buy if there are already 4-5 green candles in a row, this is higher risk
Be cautious if buying 3rd, 4th, etc, Flag Pull Backs. Fake outs will be more likely


How to Buy

  • Buy the first 5min candle to make a new high on Bull Flag after 2-3 red candles of pullback
  • Buy as soon as the HOD breaks for Flag Top Breakouts
  • Buy the price of the red to green move


Stop Price

  • Always stop down 20 cents for typical position sizes, if small size stop at high or low
  • If they don’t immediately pop, bail out. Look for immediate resolution


How to Sell

  • Sell half when I’m up 20 cents (1:1 ratio)
  • Use 5min or 1min trailing stops to hold the rest as long as possible (first candle to make a new low is the exit indicator).
  • If they don’t immediately pop, bail out.


Position Sizing

  • Using a 20 cent stop I’m risking not more than $1k/trade.   Max initial size of 5k.
  • Use 3k as base position size, double if it’s strong to 6k, triple to 9k if really good.
  • Typically going to trade most aggressively on Momo trades in the morning vs afternoon.



Track your statistics

  • Success rate stats:
  • Profit Loss Ratio:
  • Average Trades per Day:
  • Average Winning Day Profit:
  • Average Losing Day Loss:
  • Anticipated Profit over the course of 1 month:
  • Anticipated profit over the course of 1 month if I double position sizes: