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Trading Strategies

Momentum Trading

A strategy that buys stocks making strong moves on high volume, riding the trend until momentum fades.

What is Momentum Trading?

Momentum trading is a strategy that enters positions in stocks showing strong directional movement, betting that the trend will continue. The core idea: stocks that are going up tend to keep going up (and vice versa).

Momentum indicators

  • High relative volume: RVOL above 2-3x
  • Strong price action: making new highs on increasing volume
  • Catalyst: news, earnings, or sector rotation driving interest
  • Technical breakout: clearing key resistance levels

Exit strategy

The hardest part of momentum trading is knowing when to exit. Common approaches: trail a stop below the 9 EMA, sell into parabolic moves, or exit when volume dries up.

Related Terms

Breakout

When price moves above resistance or below support with increased volume, signaling a potential new trend.

Bull Flag / Bear Flag

A continuation pattern where price consolidates in a tight channel (the flag) after a strong move (the pole).

Catalyst

An event or news that triggers a significant price move: earnings, FDA approvals, analyst upgrades, etc.

Gap and Go

A day trading strategy that buys stocks gapping up on news/earnings in pre-market and rides the momentum at the open.

Relative Volume (RVOL)

A ratio comparing the current trading volume to the average volume over a lookback period, typically 10 or 20 days. An RVOL of 2.0 means twice the normal volume.

Scalping

A strategy of making many small trades for tiny profits, holding positions for seconds to minutes.