| Momentum stock trading is the art of taking profits | | | | momentum is not playing around within the recent hi |
| from the stock market with short-term trades | | | | lo range. |
| designed to profit from a stock's upward or | | | | How do I select an entry point? |
| downward daily momentum. Many investors consider | | | | Setting an entry point above the recent hi (if you |
| this to be a low risk trading method because, done | | | | intend to go long) or below the recent low (if you |
| properly and with discipline, you only enter a trade | | | | intend to go short) helps you catch bigger, more |
| when the targeted stock's momentum is already | | | | significant momentum in your trades. In our example, |
| moving in your direction. | | | | Stock XYZ was showing resistance at $60, i.e. the |
| There are a handful of key factors in successful | | | | price has not recently gone over $60. I would set an |
| momentum trading. This article looks at the | | | | entry point at something slightly over $60, like say |
| importance of entry points. An entry point is the | | | | $60.30. By setting your entry point above the most |
| point at which you are willing to enter a trade. | | | | recent resistance level, your trade will only trigger |
| Why bother setting specific entry points? | | | | provided the momentum is already going in the |
| Quite simply, because you want to catch the | | | | direction you predicted. |
| momentum once it has started, instead of buying and | | | | In other words, your trade will trigger if the stock |
| hoping your prediction comes true. For example, let's | | | | price's upward movement reaches your entry point |
| say Stock XYZ closed at $58, with a recent hi/lo | | | | of $60.30. Now you are in play and you have got |
| range of $55-60. Your research leads you to believe | | | | momentum on your side and a winning trade to |
| XYZ is poised to run up. Great! So you put in your | | | | manage. If, however, there is initial downward |
| order to buy first thing in the morning. But what if | | | | momentum, your trade won't trigger and you have |
| the stock opens at $59 and then drops down to | | | | preserved your capital for other trades. Setting |
| $56? Now you've got initial downward momentum | | | | proper entry points is therefore essential to your |
| working against you and quite possibly, a losing trade | | | | success in momentum trading. |
| on your hands. The key to successful trading on | | | | |