Riding the Momentum Wave: Oliver Velez's Intraday Trading Strategies
The Black Book of Day Trading Strategies
1,000 complete strategies · 31 chapters · Full trade plans
Identifying Stocks with Intraday Momentum
Intraday momentum trading is about finding stocks that are on the move and riding the wave. Oliver Velez uses a variety of tools to identify these stocks. He scans for stocks that are making new intraday highs or lows on high volume. He also looks for stocks that are breaking out of consolidation patterns. A stock that has been trading in a tight range for the first hour of the day and then breaks out on a surge of volume is a prime candidate for a momentum trade.
The Role of Volume in Confirming Momentum
Volume is the key to confirming momentum. A breakout on low volume is likely to fail. A breakout on high volume has a much higher probability of success. Velez looks for volume that is at least two to three times the average volume for that time of day. This indicates that institutional money is behind the move. For example, if a stock typically trades 100,000 shares in the first 30 minutes of the day, a breakout on 300,000 shares is a strong signal.
Entry and Exit Strategies for Momentum Trades
In a momentum trade, the entry is typically on the breakout. A trader might place a buy stop order just above the consolidation range. The stop-loss should be placed just below the breakout level. The initial profit target can be a measured move, or a trader can use a trailing stop to ride the trend as long as possible. A common trailing stop technique is to use the 20-period EMA on a 5-minute chart. As long as the stock remains above the 20-period EMA, the trade is held.
Managing Risk in a Fast-Moving Environment
Momentum trading can be exhilarating, but it can also be risky. The key to survival is strict risk management. Velez advocates for the 2% rule, which states that a trader should never risk more than 2% of their trading capital on a single trade. This means that if you have a $50,000 trading account, the most you should risk on any given trade is $1,000. This allows you to withstand a series of losses without blowing up your account.