It has always been my belief that the longer you hold a stock, the less predictable the trade becomes. That belief is what drew me to momentum trading in the first place.
Let's face it, in any form of trading or investing, we essentially are trying to predict the future. I'm more comfortable attempting that when I can see all the variables that could affect a trade right in front of me, in the most immediate sense possible. That means reading the tape, which I'll go into further below. First, it's important to understand how time frame affects trading.
I look at the future movements of stocks the same way I look at my own plans and goals for the future. I could decide to go on vacation next year, and I could plan that vacation with the best of intentions. But as we all know, life is unpredictable and a year is a long time. A thousand "what ifs" could get in the way. The further away my plans are, the more room there is for unforeseen obstacles to emerge that will thwart them.
It's much easier (and a safer bet) for me to try to predict what I will be doing in the next 10 minutes. I intend to still be sitting here writing. Not only do I know my intentions, but there's a much smaller chance that something will get in the way of those intentions in that short amount of time. I know that I am alone and undisturbed. My computer seems to be working. I don't physically see anything that will stop me. The present conditions affecting me now are likely to remain constant over the next 10 minutes. The further out my time horizon for making that prediction, however, the greater the chance of something else coming up.
Momentum Trading Summer Reading Was the Thin Tape 9/8/2005 8:00 AM EDT The smaller swings of a low-volume market can help you hone your ability to read tops and bottoms.
Momentum Trading Rebuild Confidence After a Bad Trade 8/25/2005 8:17 AM EDT Start with a shift in understanding: It's not the outcome but the quality of the decision that matters most.
Momentum Trading RIMM Moves to the Momentum Beat 8/16/2005 2:01 PM EDT This stock meets momentum traders' needs and offers a case study in how they're playing today's market.
Ken Wolff is founder of MTrader.com, the first educational daytrading site on the Net, and co-founder of Investingonmomentum.com, a Web site devoted to short-term potential for retirement accounts. TheStreet.com has no affiliation with InvestingOnMomentum.com, and no endorsement of InvestingOnMomentum.com or momentum trading is intended. At the time of publication, Wolff had no positions in any of the securities mentioned in this column, but positions may change at any time. While Wolff cannot provide investment advice or recommendations here, he appreciates your feedback; click here to send him an email.
RSS FEEDS
PODCASTS
