Should I Momentum Trade?

A momentum day trading strategy can create massive profits when done correctly. By selecting and trading the right momentum stocks you as a day trader can win big, but equally you can lose big if you pick the wrong opportunities.

Momentum trading brings with it a high risk, and as the old Spiderman quote goes:

With great power comes great responsibility.

The stock market can present you with a long list of hot stocks, on a daily basis. Many of these stocks can be extremely risky, while may not produce the momentum you require to make big profits.

The art of a momentum trading strategy is knowing how to identify and approach the best momentum stock opportunities that the market presents to you. If you can do this, you will be able to generate a consistent, and respectable amount of money in very short periods of time.

It’s no secret that day trading stocks with momentum is not the only way to make money trading, however it can be the fastest way to make big profits. This of course only works when it’s done right.

Many people get this wrong and as such they stay away from momentum stock trading, having been burned in the past, or heard many a horror story online. Most people look at it and think that only a few retail traders are good enough to profit from such a system. And in all honesty the evidence would suggest that this is true, as 90% of retail traders lose money trading.

It would appear that only those traders with the knowledge and expertise to execute high risk trades have the ability to profit consistently from momentum stocks. That being said, you don’t necessarily need to trade momentum stocks exclusively. You can use a mix of styles and pay attention to momentum stocks while executing a different strategy, learning how momentum stocks move and react without trading them.

Once you’ve spent some time building up the knowledge of these momentum stocks, you can plan to take advantage of them when you’re confident and informed. This way you can also be more picky and only take trades that provide the very best opportunities, maximising your probability of success and seriously limiting your risk.