5 Day Momentum Trade Setup
5 - Day Momentum Trading Method
Requirement Candlestick Charts/Bar Charts with Stochastic Indicator (8,3,3) Settings and ADX (14), PDI (14) and MDI (14).
Brief Introduction This setup belongs to Jeff Cooper known as one of the finest momentum traders. The setup is simple to understand and implement. This setup is typically for trending markets and will work fine with uptrending and downtrending markets. Please note that, while uptrends,
IGNORE short signals and while dowtrends
IGNORE buy signals. The success rate of this setup is 50%. However, since the losses are so small, you will have trades with large gains.
Trade Setup - Pick a stock which is trending upwards. A typical setup occurs when the stock runs up a bit and then retraces back (typically between 38.2 and 50% level). To identify which is the valid entry point, stochastic (8,3,3) should give a buy signal below or at 30 and ADX(14) should be above 35 with PDI (14) greater than MDI (14).
Example - In an example shown below, Allahabad Bank has given a buy signal on 8th of October 2009. Stochastic has crossed below 30 with ADX(14) greater than 35 and Positive divergence (14) greater than Negative divergence. Buy on 9th October above the previous day's high and suqare off the position typically on the 4th or 5th day.
StopLoss - Stoploss is below the low of the buy signal day.
Usage - This pattern can be used on DAILY charts for 3-4 day trades.