What Happens when Momentum Leaves a Stock?

Without a decent trading system (proper risk management, entry/exit strategy, stock selection and a market breadth timing tool) trading momentum can be hazardous to your account.

While momentum trading can reward the patient, it also can penalize those of us who jump in to late or hold on to long hoping for a reprieve.

Below are two stock charts showing what happens when momentum heads for the hills, whether it's permanent or temporary will be decided by the individual stock action over the next few weeks.

TRW Automotive Holdings Corp.  (Public, NYSE:TRW)
Cirrus Logic, Inc. (Public, NASDAQ:CRUS)

1. When your Market Breadth Indicator signals general market weakness, pay attention. At this point, tighten stops and/or take profits.
2. Profit targets, profit targets, profit targets.
3. Always honor your stops.
4. Moving average support works in an uptrending market but when breadth is gone watch out.
5. If you bought at proper buy points, damage could of been minimal.
6. Both sectors took a hit, dropping out of the top 10 list. "Stocks move in groups"

These could be setting up for decent buy opportunities, or they could fall further. For now, I'm sitting on the sidelines waiting for a breadth confirmation on the general market. Once we have breadth back, we can focus on some of these beaten down leaders that might climb back to the top.

Have any additional observations? Post them in the comments.

2 Response to What Happens when Momentum Leaves a Stock?

December 23, 2015 at 9:50 AM


December 23, 2015 at 9:53 AM

Great observations! I read all 6 points shared by you. We must observe all points while momentum trading.
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