Some Trading Coach Jo clients have been asking me about how they can best measure momentum. With the current market, I have been using the previous 2 day high/low plus the first 30 minute OR. I use this as a validator just before opening a trend trade. Let me explain:
When a ticker meets all my written entry rules for a trend trade, I then take my last step before entering. I open up a 5 minute, 2 day chart. Part A and Part B both must be met before I will open a trade. The order of Part A or Part B does not matter. They just must both be satisfied. Part A = the stock price is above the high for the previous 2 days. Part B = the stock price is above today’s 30 minute Opening Range (OR).
This type of momentum checker has been very useful to me. It has kept me out of trades and gotten me into the right trades. Hope this tip will be useful to you.
Need more validation of a stock move? In addition to the Opening Range (OR) for an individual stock, also consider the stock’s exchange.
If the stock symbol has 4 letters, it is traded on the NASDAQ. For example, if you are waiting for a strong move on AAPL, check to make sure that AAPL has actually broken out of it’s 30 minute OR. As another validator, check the NASDAQ to see if it also is trading outside of it’s OR.
For stock symbols with less than 4 letters, check the NYSE. You would want the NYSE to be trading outside of it’s OR. Whether it is trading up or down does not matter. We only want to validate the momentum of the trade to make sure that the stock is moving in the intended direction.
Remember that the more true validators in your favor, the greater the probability of success.
In the current market, I am seeing that stock moves don’t seem to have much momentum behind them. A stock may break out of it’s channel for a short time, only to have it go back into that channel. One thing a trader can do is to pay attention to the opening range. Different traders use different time frames for different strategies.
Some use the first 30 minutes. After 8AM MST, I mark the charts that I am interested in by a horizontal line at the high and a horizontal line at the low of the time period beginning when the market opens to 30 minutes after open.
If a stock seems to be breaking out of it’s pattern, yet has not broken out of it’s OR, I don’t trade it. If it breaks the OR, that is one sign of validation that this stock may have the power to continue to break to new highs or new lows. If it breaks up, we buy calls. If it breaks down, we buy puts.
Trading Coach Jo clients back test to see if paying attention to the OR would hae been a good thing. Check it out for your trading practice. Let us know what you have found.