This week we want to examine how to find stocks that are poised to move with momentum. The usual momentum indicators using moving averages tend to lag behind price action rather than indicate momentum building BEFORE it occurs. This is because institutional investors use incremental, bracketed controlled price orders to buy stocks during their accumulation phase.
By using indicators specifically designed to track the institutional investor and the institutional trader, you are able to enter these stocks prior to the big pops, runs, and gaps that are very common in Platform Market Conditions. These indicators are the new Hybrid indicators for retail traders.
Let's take a look at an example:
Chart 1TTQA is an indicator designed to track whether large lot (institutions) are steadily buying or steadily selling the stock. The indicator is showing that even on this very quiet day for both the stock and the market, institutional buying was going on quietly in the background. Volume surge confirms this.
Below we see that the Flow of Funds aka money flowing into the stock has been steadily and consistently on the rise and today on this very small candle, there was a surge of funds moving in. The TTVA shows that the shift to buying has become consistent with a heavy move into the stock. RSI has moved above is floating center line indicating that the price in this sideways action is improving or moving up even though it is harder to see visually with the candles. The platform pattern is improving and RSI shows this.
Chart 2MACD and Stochastic are the old stand-by indicators that most traders use when they first begin trading. These are easy to read indicators, don't require much training and do well IF they are applied in the appropriate market conditions and used for specific purposes.
However, they do not lead price as the hybrid indicators above do. MACD is not telling much about what will happen next with price. It is not indicating momentum BEFORE it happens but is mirroring price action. The problem with using only MACD is that you are missing about 70% of the analysis you need for consistent success in trading momentum stocks. MACD should be used in momentum markets. It tends to lag during platform market conditions.
Chart 3 Stochastic below is showing that during this sideways action the lines are steadily moving toward what most traders understand to be the overbought line. So most traders would assume a DOWNSIDE action was coming. They would not see that this stochastic has had a "floating" action recently and that this means momentum is underway even though price has not moved out of the platform sideways action.
Chart 4 Here's what happened:
The stock ran up out of the platform which is common in a platform market. Institutional traders pushed price up with heavy buying followed by short term profit taking.
Chart 5 To be successful as a swing or momentum trader, you need to use indicators that track the institutional activity for both the institutional investor and institutional trader who account for over 70% of all orders traded in the markets these days.
By following the institutional footprints on the chart instead of relying on older style indicators you will be able to enter stocks before the big moves, gaining more profits per trade, and improving your overall success rate.
Remember: Consistent successful trading will net you far higher ROI than hit and miss trades where a few are high profits followed by many losses. Your goal should be at least a 75% success rate.
Trade wisely,
Martha Stokes, C.M.T.
Member of Market Technicians Association
Master Rated Technical Analyst: Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
MetaStock Partner
