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Why the Best Short-Term Trading Strategy Is Based on Momentum

by | Feb 22, 2022

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I’m going to show you the best short-term trading strategy for beginners — as well as experienced day traders. 

I learned this strategy about 17 years ago and still use it to this day, with only a few minor modifications. 

This day trading strategy is a momentum breakout technique that catches stocks and other assets while they’re going through a period of heavy volatility and momentum.

The Best-Short Term Trading Strategy for Beginners:

1 Challenge Traders Face Is Finding Momentum

Anyone with basic day trading experience will tell you one of the biggest challenges for most investors is finding stocks with sufficient momentum and volatility to make a trade worthwhile.

I can tell you from personal experience there’s nothing more frustrating than getting into a fast-moving market… only to see it slow down immediately after your order is filled.

So because this best short-term trading strategy for beginners is based on intraday momentum, make sure the stocks you choose have enough momentum to justify your risk.

Always Start With a Daily Chart

You always want to start with the daily chart so you can see the past trading history and characteristics of the stock you’ve chosen to trade.

I start out by monitoring stocks that are close to 90-day breakouts. 

As you know based on my previous articles, the 90-day breakout produces the highest ratio of winning to losing trades.

So in other words, the best candidates either gap up to a 90-day high, or reach the 90-day high by way of extended trading range. 

I’ll show you both examples in this article so you can get a good idea of the type of setup you need to find.

You Need Confirmation Prior to Entry

Once the stock breaks out above the 90-day high, I wait for a confirmation signal. 

There are often a ton of false breakouts, so we want to make sure the momentum we see is real and not ending immediately after the price breaks out of the trading range.

When using this day trading strategy, I like to enter when there’s a gap day following the breakout from the 90-day price high… This means if the price gapped up out of the 90-day range, I’ll want to see a second gap day prior to entry.

You’ll see in the example how the stock breaks out and, once again, gaps up for the second day in a row. 

This would be sufficient for me to justify entering the trade.

How to Enter and Exit the Trade

Once the stock gaps up for a second time, we can safely enter the trade. 

I advise you to watch the market carefully prior to the opening bell to get a feel for the stock you’re trading.

If the stock or asset you’re trading opens with a gap up, you can safely enter a market order — assuming there’s sufficient volume.

Most market orders get filled instantly, so you’ll be assured your condition to entry has been completely satisfied prior to your order being executed.

Once your order is executed, stay with the trade till the closing bell. 

Because this best short-term trading strategy for beginners is based on momentum, the odds of the closing price being in the top 20th percentile of the highest price is roughly 80%… So I suggest holding the trade till the closing bell and exiting via market-on-close order. 

The Best Day Trading Strategy for Beginners: Another Example

If you’re paying close attention, you might have noticed I said the first or the initial breakout outside the trading range doesn’t have to be a gap… It can also be an extended range day.

I want to make sure you understand the concept of extended trading range, so this next example uses a stock that breaks out of the 90-day trading range through volatility and price instead of gaps.

Everything beyond that point is the same, except the initial setup can substitute the first gap if the extended-trading range is strong enough.

There’s a formula to calculate the extended range but I will save that explanation for another day. 

Here, you can see how the trading range is almost triple the recent range for this stock. 

This is the type of strong trading range you want to see breaking out of the 90-day price high.

Once you identify the stock with a sufficiently high breakout range, or a gap as we saw in the previous example, you should begin to monitor it before the next day’s opening session to make sure a gap is forming.

Remember, no matter how good the initial breakout looks, you have to make sure your entry is preceded by a gap — no matter what. 

Here’s a perfect example of an extended trading range breakout followed by a gap immediately before entry.

And the final example below will show you how the entry and the exit appear on an intraday chart. 

Notice how I wait for the gap and then enter a market order immediately after the opening bell.

The order typically takes about three seconds to execute in a volatile market. 

I recommend you watch the market closely prior to the opening so you’re ready to go when and if the gap occurs. 

The stop loss level is placed $0.05 below the gap bar, so you should have no problem identifying it and placing it immediately after you’re filled.

Things to Keep in Mind

This is one of the easiest and best short-term or day trading strategies for beginners looking to take advantage of momentum setups. 

Remember, the breakout can be either a gap or an extended range bar.

Either way, you can’t enter the trade prior to confirmation gap that occurs at the opening bell after the breakout outside of the trading range.

Make sure you place your stop order immediately after you receive your fill, and don’t try to exit the strategy prior to the closing bell. 

This is pure momentum, so you want to make sure you give the strategy time to work. 

I hope this helps!

Roger Scott
Roger Scott Trading

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WRITTEN BY<br>Roger Scott

Roger Scott

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