Better Trades Momentum Part 1
Below is a MRR and PLR article in category Finance -> subcategory Investing.
Better Trades Momentum Part 1
Title:
Better Trades Momentum Part 1
Summary:
I love trading options on stocks with strong momentum. This means focusing on stocks, Exchange Traded Funds, or Indexes that are moving quickly. If I'm investing, I want my money to work as effectively as possible.
Keywords:
better trades, bettertrades, investing, investments, finance
Article Body:
I have a passion for trading options on stocks with substantial momentum?"stocks, Exchange Traded Funds, or Indexes that are rapidly advancing. My goal is to invest where my money can yield maximum productivity. You might have participated in my free webinar on Monster Momentum plays, where I introduced some technical tools for this strategy. Today, let's explore additional components that can enhance your trading account.
The first step in trading momentum is identifying stocks capable of swift and significant movement. These stocks typically have a daily range of one to two dollars but can trend twenty to thirty points in a few months when momentum kicks in. This momentum might be triggered by events like earnings reports or new drug approvals, or it might simply result from institutional buying or selling. By mastering technical analysis, you can identify building momentum and capitalize on major moves. As we approach earnings season, this article will outline methods to trade post-earnings momentum. Stay tuned for part II to discover more technical momentum plays.
Holding a directional trade over earnings can be risky, but post-release, the uncertainty about the stock's direction is resolved. Trading after earnings is appealing because of increased activity that propels stocks beyond their usual movements. Earnings might surprise the market, or traders may act decisively based on quarterly results. Remember, we trade reactions to numbers, not the numbers themselves. Analyzing charts after a company announcement reveals tradable momentum. Significant buying pressure suggests an upward trade, while selling pressure indicates a trade downward.
One of my favorite post-earnings plays is Goldman Sachs (GS). This approach has yielded great success with Goldman multiple times this year. Keep an eye on this stock during their next earnings release!
In September, Goldman Sachs announced earnings and broke resistance. My Technically Speaking workshops explain using intraday charts for trading on the news day, but here, I'll show you how to profit from this strategy even if you can't monitor intraday charts. Recognize momentum on daily charts. Many momentum plays, like GS, start as breakouts. Goldman formed a bullish Opening Marubozu candle on September 19th after its earnings release, closing above a past $155 resistance level?"a strong signal. After such signals, I confirm with my indicators (join my Technically Speaking workshops or watch the class on DVD for more on my technicals). I look for any reason to avoid trades. Any bearish indicator or pattern stops me. But if the technicals confirm a bullish trade, I enter the next day. Caution: news may drive a stock for just one day. Hence, I prefer entering trades above the high (or below the low if it drops) on the announcement day.
Using this method, we entered a post-earnings trade for Goldman around $159.75. The price graph and indicators were bullish, so we proceeded. Once in a trade, stay until buying pressure persists. It often sustains a stock for three to five days. Goldman's momentum lasted three days but resumed its upward journey after a short pause. The stock maintained bullish momentum from $159.75 to $186, where it stood as this article was written. These plays can be single trades you hold or ones you position in and out of, capturing profits along the trend.
Entering this trade type can seem risky due to gaps. The risk is that all activity might occur in the gap, lacking momentum to continue. For instance, when the Chicago Mercantile Exchange (CME) announced buying CBOT Holdings (BOT), CME gapped to a record high, opening ten points above the prior month's long candle.
After opening, no one bought CME higher, and the stock dropped sharply. When a stock gaps beyond its comfortable trading price, much action is in the gap; the safest trade might target the retracement. To make gap trades safer, avoid them unless the gap is near the recent trading range. With CME, the stock was too high for comfort, prompting quick profit-taking. Conversely, Goldman's gap to $155 matched past purchase prices, encouraging traders to buy post-earnings. Buyers willing to pay $155 or more propelled GS higher.
Earnings announcements offer lucrative trades. Momentum from news can spark investor interest, driving buying or selling surges. Regardless of direction, trade it. Check technicals before buying calls (if bullish) or puts (if bearish). Ensure the stock gaps to a recent price range for potential movement. Enter the trade, manage risk with a stop, and you can boost your account during earnings season trading momentum.
Looking forward to seeing you soon!
By Markay Latimer with Better Trades
You can find the original non-AI version of this article here: Better Trades Momentum Part 1.
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