What is the Best Day Trading Strategy? This is Bill the first, and this is bill’s cat. Bill the first is standing on the First floor, and Bill’s cat is on the ground floor. Bill wants to call the cat upstairs to watch his favorite show Tom and Jerry. So to call his cat, Bill the first says “cat noises!?”. “Sure man, will be right there!” Bill’s cat replies. After hearing those noises, the cat wants to go upstairs. Between Bill and Bill’s cat, there are some big stairs. Bill’s cat jumps on the first stair, then gathers the energy to jump on the second stair. After jumping on the second stair, Bill the cat rests for a while, and then jumps to the third stair, and so on. When Cat was on the first stair, it gathered energy and used her paws to gain upward momentum. Since the cat is not a Space X rocket, it loses its upward momentum fairly quickly. When the upward momentum is lost, the downward momentum is increased because gravity and Bill’s Cat lands perfectly on the second stair. Then everything happens again, the cat gains momentum, and then loses momentum, gains momentum, and loses momentum. But even though the cat is losing the upward momentum, it is still going in the upward direction to watch Tom and Jerry. The stock market and Forex Market you trade is like Bill’s Cat. No, it does not go higher to watch Tom and Jerry. But when it does go in the upward direction, it will move very similar to Bill’s Cat movement in this example. If we remove the stair, the cat, and Bill itself, you will notice that this line looks very similar to an up-trending market.
When the price is in an uptrend, there will be an upward momentum, then the price will lose its upward momentum and will start to come down. But here’s the thing, if the price is really in a good uptrend, there is a high probability that the size of the downward move will be smaller than the upward move. Now keep this in mind for a moment, and watch Bill the first throw a ball. When Bill the first throws a ball from the top of the stairs, it bounces and gains an upward momentum. But this time, when the upward momentum is lost, the ball finds support lower than the previous point. The ball keeps finding support at a new lower point with every bounce. And you can probably tell that movement of the ball falling from the top of the stairs, is very similar to a downtrend in the Forex and Stock Market.
Now here’s the Momentum Day Trading Strategy that I use to make money when the stock market opens.
You see, in the Forex and Stock Market, there are times when price makes a very big move in one direction in just one or few candles. These moves are usually caused by news, events, or by a breakout of an important price level. In the stock market, big one-sided moves are really common and easy to spot. Few minutes after the stock market opens, you can find the stocks that made a big move in one direction by looking at the top gainers and losers of the day. If you find a stock that made a big move after a gap open, it’s even better. Because when a stock opens with an unexpected gap, there is a lot of buying and selling activity at the market open. Here’s what it looks like. On this stock chart, the price opened with a gap up. It opened above a resistance level. When the price was below resistance, traders who took a short position, probably set their stop loss just above the resistance area. But when the price opened with a gap up, they were suddenly in a more than expected loss. Since they shorted the stock, they have to buy to close the position. And when they will buy to close, it will create even more buying pressure. The traders who wanted to go long will also go long after seeing the price above the resistance area.
When this happens, in other words, when price makes a big move in one direction, I like to enter a long position near the end of the first pullback after the big upward move. How do we find the end of the pullback in setups like these? Well, there are different methods for Stocks and different methods while trading Forex, that’s because Forex charts have more market noise on smaller time frames than the Stock Charts in my experience.
In the stock market, I trade momentum strategies on timeframes like 5 mins, and once I see a strong upward momentum like this, I like to wait for a few weak red candles to form, and enter at the first green candle that closes above the previous red candle.
For example, here, a big green candle appeared indicating a temporary buying pressure. We want to buy while the buying pressure is still there, but we are not going to buy at the top of this upward move. We will wait for a few red candles to form. In this example, two red candles appeared. And when the first green candle closes above the previous red candle, in this case, that is right here, we take a long trade. When taking a trade like this, I like to set the stop loss below the entry candle and a 1 to 1 reward risk ratio profit target. Since this trade is to capture some of this upward momentum, a tighter stop loss with a 1 to1 reward risk ratio gets me a very high win rate. I think I mentioned in one of the videos last year, that I got multiple green days in a row just by trading with momentum like this. Furthermore, I have made live trading videos trading exactly like this on the Trading Rush Channel. Check it out to see a live example.
Now since Forex Market on the smaller time frames like 5 mins is a bit noisy, I prefer using a momentum indicator like MACD. MACD Trading Strategy was one of the profitable trading strategies, that got more than 60 percent win rate when we tested 100 times. But if you remember, in the follow-up MACD video, I explained how MACD works, with a cat example just like I did in this video. If you have watched that video, you already know how to use the MACD, to find the change in momentum and the proper end of the pullbacks. Check out that video if you have not already, and subscribe to the Trading Rush Channel while you are at it because then you will also get to see win rates of other trading strategies like Bollinger Bands and RSI that we tested 100 times because you don’t want to use a strategy that doesn’t work.
If you don’t want to trade with a tight below the entry candle stop-loss as I do, you can trade like this. Here’s a Forex example, and as you can see, the price has made a good move up. Since there is more market noise in the Forex Market, when the price gives a weak pullback, instead of buying when the green candle closes higher than the previous red candle, we can instead use a momentum indicator like the MACD, and enter when it shows the momentum change, and set the stop loss below the pullback. Again, I have made a detailed video on the Best Part About the MACD Indicator.
Now, if you want to trade the momentum, you have to remember that you want to trade the momentum. Here’s what I mean.
Here, the price opened with a gap down and even went in a downward direction. But then some big green candles were formed indicating a buying pressure. This is not a good setup, because these green candles are indicating an upward momentum, which is not something we need while looking to go short.
When I trade the momentum, in a long setup, I like the first few candles to be big green candles, followed by small red candles indicating a weak pullback. Furthermore, the pullback should end in the top 50 percent of the initial upward move. Similarly, in a short setup, I like the first few candles to be big red candles, followed by small green candles indicating a weak pullback. And in a short setup, the pullback should not cross 50 percent of the initial downward move.
There are more momentum trading strategies for situations like price going in the opposite direction etc. But they need a separate video, and maybe another cat example. So Like the video if you liked it. Subscribe to the Trading Rush Channel and ring the notification bell, to see that momentum video, and to see win rates of many different trading strategies that we have tested 100 times. Support Trading Rush on Patreon, and see In-depth trade analysis and get Trade Opportunity Signals. Thanks for watching!
