Author: WSDT Editor

Currently, the momentum strategy is one of the most widely used strategies in day trading.
Today, we would take a look at it from various angles as a subject matter and whether it makes the cut as a top-level strategy. We would also take time to answer crucial questions such as:

What Is the Momentum Strategy?

Some believe momentum(a.k.a trend-following) strategy is an investment strategy that takes advantage of the continuance of existing market trends. That is hitchhiking on stocks that the majority of traders or investors are buying.

It involves stocks showing heavy upward trending and short the respective assets with down-trending.

The core ideology of momentum strategy is that large increase of stocks will be followed by additional gains and the other way round. It is largely influenced by market timing based on recent trends. It also takes into account the volatility of stocks.

Momentum strategy grabs the trends that have the ability to hold off for a considerable amount of time by keeping up with a trend.
In the long term effect, financial markets go up but in recent decades, there has been a sharp increase in volatility.

It is however very important to note, that momentum stocks can fizzle out when not buttressed with solid fundamentals.

How Is the Momentum Strategy Used In Day Trading?

Momentum strategy incorporates a pattern of stringent rules embedded in technical and analytical green lights that influences entry and exit points for certain stocks in the market.

Most day traders use this strategy to juice out trading signals from two long term moving averages, one a bit shorter than the other.

Day traders, who use momentum strategy as the playing card, use another derivative of this strategy, which consists of signals based on price to trade on EFTs with the strongest momentum while shorting the ones with the weakest momentum.

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Is the Momentum Strategy Popular Among Day Traders

In a broader perspective, every trader in one way or the other follows a trend, and this is what makes momentum strategy popular among day traders.

The underlying concept that stocks that have risen in the past tend to keep rising, and stocks that have poor performance tend to keep failing makes it a catchy gospel for most day traders.

Ali Biggz, one of the Top notch WSDT mentors eulogized the momentum strategy with these words:

“I think the momentum strategy is the best strategy to use because in most cases, a
stock that has good upside or downside momentum has some sort of catalyst. With a
good catalyst comes volume and with volume, comes good range.

Combining momentum trading alongside other strategies like pivot points, or reversals,
can really give you an upper hand in the market, especially if you have learned how to
interpret the news, and how that news is going to make the stock do certain things.”

Is momentum a good strategy for WSDT?

In a general overview, quite a number of mentors used this strategy for quick gains to top the charts.

Jeremy Newsome thinks it is a good strategy for WSDT because:

1. It gives a very good volume value indications
2. It paints an in-depth picture of the bullish stop entry and stop-loss exit
3. Excellent price trend indicator

Ali Biggz solidifies it with affirmative comments on why he thinks the momentum strategy is good for WSDT by saying:

“Momentum trading is going to be good for the WSDT because stocks that have high
momentum will give you good range. A good range equals a great opportunity for you to
make money. This is because major support and resistance areas have been broken, or
will be broken and previous gaps will be looking to get filled.

It also allows you to be able to get in and out of a trade and take quick profits. Versus being in stock with very little volume and no momentum”.

Final Thoughts

The momentum strategy is a good strategy for day traders with brisk trading philosophy. As a matter of fact, it falls in line with the nature of this competition and some mentors have already concurred with this concept.

However, it would be a laudable idea to use it with strong fundamentals for good gains.

Deploying the right strategy is one of the most important factors that give you an upper hand and a strong foothold in any competition. As we already know, WDST is intense competition and traders from all around the world bring on their best strategies to win.

Therefore, understanding and choosing the right strategy is very crucial.

There is a wide array of strategies that can be used in day trading. In WSDT I, the popular strategies that were used by the winners are:

• Reversal
• Momentum
• Break-in/breakout
• Pivot points

In this article, we will shed more light and delve into the break-in/breakout (also called “breakout”) strategy.

What is a breakout strategy?

Breakout means moving out of defined range or borders, therefore the breakout strategy is simply when the price of a stock moves out of defined support or resistance where you can see an increased volume.

In other words, when the price of a stock moves out of the resistance or support range it increases the volatility of that stock, and that is a breakout.

What makes this strategy very important is the fact that it shows price trends, prospective volatility, and relevant price changes.

How is a breakout strategy used in day trading?

As a day trader, it is very important to note when it is a good point to cash in and the right time to ‘bail out’. You must first check the flow of the recent behavior of the stock to get a plan. Use the recent price action to create a price target.

You have to factor in the price pattern of the stock, which is the point(s) between the ‘upper’ and ‘bottom’ lines drawn on the trend. This will help you to set the right price target and help to forecast when the stock breaks out.

Also, when using the breakout system, one important factor you must consider is discretion. This is needed to reduce fakeouts and false signals.

If the trend of a stock’s price is going up and a straight line cannot connect the bottoms of the price action, it doesn't mean there is no moving action or trend. In fact, this implies that you cannot take this trend as being contained by a single thin line.

Break-in/break out Strategy – Uptrends

These are the signs to look out for:

• When the candles are bullish
• Volatility
• It moves very well on trend
• Momentum is a great advantage
• Fast price movement

Break-in/break out Strategy – Downtrends

These are the signs to look out for:

• False breakouts can mess your trade
• Slow price movement
• Low volatility

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Is the Break in/breakout strategy popular among WSDT mentors?

There are two things we would like to highlight here:

• The fact that this strategy worked for some mentors who had certain perception.
• Principle of risk-taking and aggressiveness in day trading.

However, it wasn’t in the good books of some mentors, which falls on the fact that it didn’t fit into their core philosophy and principles of day trading.

For example, Pablo Martinez Garcia liked this strategy, he said:

“I think it is the best strategy for WSDT because it allows to operate a large number of actions during the first minutes of the market and obtain good results”.

But Ali Biggz didn’t like this strategy that much, he said:

“I think unless you are a very seasonal trader, with very strict discipline, this can be a disaster in today’s market. This type of trading involves taking a higher risk, but also requires that you have a very tight stop-loss”.

Is the Break-in/breakout a good strategy for WSDT?

This is what Gary K, one of the winners of WSDT I had to say about the breakout strategy:

“I chose the breakout and breakdown trading strategy which aimed at finding stocks that are moving and then hit the gas pedal once the stock showed a violent pattern in one direction or another. The breakdown style got me the highest gains during the competition.”

Interestingly, this is what Ali Biggz, who seems to be coming from a different “school of thought” on this strategy, had to say before WSDT I:

“Breakout or Breakdown strategy is a risky strategy to use in the WSDT because many people entering this competition are going to be new traders. With that said, many new traders are not using hard stops as much as they should be. This is a recipe for disaster because if you buy a breakout, and then the stock does a false break out, you have to be able to get out of a trade quickly.”

According to Ali’s words, It would take a good deal of discretion and readiness to take risks to use this strategy. In as much as you cannot rely on fast-moving price trends as a sole reason to trade, it makes this strategy quite risky to use.

Final thoughts

While we would describe the breakout strategy like taking advantage of the high good waves and riding it, there would be times where that high rising waves wouldn’t be available, and you would need to factor in another strategy to win this competition. Also, consider the fact that false breakouts can occur and they might ruin your trade.

Nevertheless, this strategy can be very profitable in instances where certain events on the market have spiked up violent movements of stock prices.

Our overall verdict on this method of day trading would be that it is a very good strategy which several winners in WSDT I utilized but you must have a high level of discretion and a high risk-taking spirit to make the best out of it.

One of the well-known strategies which come up in most day trading discussions is the Pivot points strategy.

In this article, we will dissect this strategy and answer some very important questions such as:

• Is it a good strategy for WSDT?
• Is it possible to win using this strategy?
• What do WSDT mentors think about it?

What is a Pivot Points Strategy?

Pivot points strategy is calculated from closing prices of previous trading sessions. In the case of stop loss and profit-taking, day traders can use the pivot point strategy to calculate their support and resistance levels as well. It can also be calculated on highs and lows. In most cases, they are used to predict support and resistance levels in a session, be it current or upcoming.

How is the pivot points strategy used in day trading?

Financial analysts use different ways to calculate pivot points. We will talk about some of the common ways or, let's say, the most used among day traders.

Let's pick and discuss a method called the five-point system. This method is quite popular among day traders, especially the ones that use the pivot points strategy.

Basically, the five-point system is used to derive the pivot point by utilizing the high, low and close in conjunction with the two support and two resistance levels, which should make up a total of five points. All the data used for the five-point calculation must be from the previous day.

This is how to calculate it:

Step 1: Find the pivot point by taking the average of the previous high, low and close.

Pivot point = Prev high + Prev low + Prev close, all divided by 3.

Step 2: Find the first support, multiply the pivot point by 2 and subtract the previous high from it

S1= (pivot point *2) -(prev. high)

Step 3: Find the second support, subtract the previous low from the previous high, then subtract it from the pivot point.

S2= Pivot points-(prev. high -prev. low)

Step 4: Find the first resistance, multiply the pivot points by 2 and subtract the previous low from it.

R1= (Pivot points*2) – Prev. low

Step 5: Find the second resistance, subtract the previous low from the prev high and add what you get to the pivot point.

R2= Pivot points + (Prev high – Prev low)

Another way of calculating the pivot point is by finding the average of yesterday’s high, yesterday’s low, yesterday’s close and today’s opening. That is, the sum of all the above-mentioned parameters divided by 4.

In day trading, the pivot system can show you the following important things:

1.Market Trend

If the pivot point breaks in an upward movement, then it is a major indicator that the market is bullish, if the pivot point breaks in a downward trend, then the market is bearish.

2. Entry and Exits

If the price of a stock breaks at a resistance level, a limit order must be put in. Stop-loss can be put near or at a support level.

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Is the pivot points strategy popular among day traders

The main advantage of this strategy is that it helps you to make good trades based on market trends as we indicated earlier. Most traders use this method in a stable market environment to make substantial profits in day trading. This method is not aggressive, it allows you to determine where to exit and enter trades as well as note favorable points in placing stop losses.

In contrasting view, it is seen by some day traders as a very conservative style with few values or volumes of trade. This method can’t be used in certain market conditions, especially unstable or fluctuating ones.

A number of day WSDT mentors gave a thumbs down on this strategy, let’s see what they had to say:

The Pivots Points strategy is the one that least adapts to my negotiation style since it is a technical analysis possibly more used for long-term trading. I use the pivot points as an
instrument or analysis to avoid entries in false opposing revolutions but not as strategies”.

Daniel (from I&CB)

Is pivot points a good strategy for WSDT?

Most of the mentors describe this strategy as least preferred. For them, this method might not be very suitable for WSDT. These views emanate from the fact that the pivot point strategy has biased analytical procedures and calculations which is a good fit for long term trade and general market review.

Snippets of interviews with the WSDT mentors below will give you insights into what they really feel about this method being used in WSDT:

“…therefore, it is not going to offer enough opportunities and those offered are not of quality”

Jose (from I&CB)

“Although it is a strategy used by many traders, the pivot points are used for swing or
longer time strategies, in the WSDT fast strategies are needed, such as scalping and
taking advantage of the platform to read the supply and demand.”

Daniel (from I&CB)

Final Thoughts

As we have highlighted throughout this article, a pivot point strategy has a somewhat strong analytical foundation and might be a good “tool” for analysis in combination with another strategy. It is used by many day traders around the world with a conservative approach in stable market conditions.

On the other end, many WSDT mentors don't have it in their preference list. This might be largely due to the fact that it doesn’t go with the fast pace and fierce productive nature of WSDT.