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Learn the key core concepts of technical analysis how to trade options on momentum stocks use to help you determine whether a stock will have a big move or consolidate. Find out why the trend and momentum are the backbone of a solid trading plan and an essential component to trade set ups. This is Sarah Potter from shecantrade. Today's trading lesson is going to talk about finding stocks with a trend and understanding when something actually has momentum.
So you can see how this works with dots. I tried to make it pretty simple here. So blue is good it's a little early and then green means go, you've got a nice pop in here and so generally if you want to catch the beginning of the move I want to enter the call as we see three blue dots and then I hold the trade as long as we have three blue dots or three green until you basically hit your profit target or we begin to see red dots again, that would mean the move is over.
So you can certainly see here in this example that this definitely had some momentum, it popped up and if you bought how to trade options on momentum stocks call you'd have done quite well in that trade. So let me take another step back so if you don't have the indicator you can still trade and still do really well, it's about identifying the opportunities. And so this to me is a stock RH as a stock that's trending really nicely. So there's lots of really good variables here that you can look for.
So one is you'll notice that I want to pay attention to how is it moving on multiple timeframes specifically the weekly and the daily. So this one has been moving higher so trading below 45 and now up at 68, it's hard to argue that this is moving in any direction other than up because certainly over the last two months or so this has had a very nice run.
On a weekly chart it also has had a nice run. So certainly hard to argue, this is definitely in an uptrend. What makes this an attractive trend though is something a little deeper if you look at price and notice that price is staying quite nicely above the exponential moving averages and that's what these lines are on my charts, the purple, the gray, the yellow, the green and the red. So this is the 8, the gray is the 13, the yellow or gold color is the 21, this is thethis is theexponential moving averages and what's really nice is this is not only trending but we have price that is sitting above so all the candlesticks are above these moving averages and that is really nice.
We also have things like higher highs in this stock. So every day we're seeing it make how to trade options on momentum stocks highs it's only pulled back just a little bit and then it how to trade options on momentum stocks to pop back up again. So this is definitely a stock that has momentum in it. Now we're looking for entries to actually use these to your advantage to place trades and make money you want to also determine whether or not there's also a trend on something like a minute chart that'll help more with entries especially with swing trading.
So we know overall that RH is moving higher but we need to be able to get into a trade. So in order to get into a trade we look at something like the minute and the 5 minute chart and if you look here it's actually got a pretty nice example right now, this is had momentum, price is pulling back just a little bit, nothing's broken down the trend still continues because we have price sitting above the EMAs here on a minute chart.
So to me this is a stock that I definitely would want to pay attention to, look in more detail to look for a call or something within a directional assumption because it has such a strong trend here on a daily chart as well as a weekly chart, we're moving higher on a minute chart and we've pulled back just a little bit here which is a nice opportunity to get in.
It's almost coming back and saying, just come on and pick me up here. So basically this is a nice example of a stock that's trending really well and if we compare that to something like here in Starbucks while on a daily chart this is moving lower it's a little bit Messier here on a weekly chart. So Starbucks just the characteristics of it, it can have stocks at times where it actually moves sideways for quite a bit, you can see here and then it takes off, it's coming back and then I would anticipate Starbucks to actually move sideways again.
That's just the characteristics of that stock in general. But looking at stocks on multiple timeframes is very helpful. So we can certainly identify a trend here in the daily chart a bit moving lower but if we look at the behavior of how Starbucks moves on a weekly chart it's probably going to move into consolidation which is what it likes to do. So I don't want to get too excited in thinking that there's tons of momentum here because we are probably just moving back into in consolidation so this wouldn't be a stock that has continued momentum and you can also see the indicators showing that as well in that it has some red dots meaning that the move is pretty well over.
Now there's always risk and trading you certainly want to be able to make your own choices when it comes how to trade options on momentum stocks looking for trades, there is risk and reward and it's absolutely so satisfying to be able to how to trade options on momentum stocks great trades.
I do rely how to trade options on momentum stocks charts and like to pay attention to things to stocks at our trending versus stocks that are not and I want to generally place trades in the same direction of the trend. So this has been Sarah Potter for she can trade I hope this has been a great lesson for you and I look forward to seeing you in the training room or there's lots more content here on the site.
Contact Us Member Login. How to Determine Trend and Momentum. How to Determine Trend and Momentum Learn the key core concepts of technical analysis to use to help you determine whether a stock will have a big move or consolidate. Video Transcript Hi traders!