Momentum Position Trading and Investing

11/18/2007 12:00 am EST

Focus:

Toni Hansen

President and CEO, Trading From Main Street

Toni Hansen opened her workshop by stating that it is a myth that swing trading is the way to go if you want to trade full-time. Instead, in reality, position trading, which refers to the time frame on which you are trading to identify patterns and set-ups, is better.

She told her audience that she uses the same time frame on all markets that she trades, as well as the same basic pattern development formulas.

But unlike many traders, Toni said that instead of thinking in terms of pure patterns, she looks at the components that go into those patterns.

She suggested that traders start by selecting one or two core strategies to perfect and then ignore all others.

Toni shared her five building blocks of pattern development:

Price/momentum: a measurement of a trend move in a second as compared to an average move, but also the most recent move on a given time frame.

Volume: a measure of the number of shares or contracts that change hands in a given time period. Volume is instrumental in representing the level of emotional commitment of market participants. Toni looks at the level where volume has been the lightest of her time period and uses it to identify if it is close to setting up a breakout. If combined with pace, she keeps a much tighter stop than if a pure breakout.

Support and resistance are price zones in the market where a security is liable to react in some manner that affects the trend which is in play as the support or resistance level hits.  There are a number of different types and none are absolute, perfect numbers. Toni noted that the more momentum you have going into a support or resistance level, the more give the support or resistance level has.

Trend development is important as trends form in several ways and understanding how they develop as well as the placement of a set-up or position within the larger trend development is indispensable when it comes to locating a high probability set-up. Toni noted that in Elliott Wave Theory, one of the key things to look at is that you want corrections between each wave to be about the same amount of time. That then gives you a high probability that the next wave is the final one before the channel breaks.

Correction periods are times of the day or times of the year when the market is likely to correct from an earlier trend. Many larger trends begin to correct at the beginning of the year and at the end of summer and into the fall. March is also a pivotal correction month.

Toni also shared her traits for success, saying they reflected characteristics for a successful buy:

  • Two-to-three corrective waves
  • Momentum slowing on last pullback
  • Pullback into support
  • Volume declining on pullback
  • Immediate overhead resistance
  • Corresponding correction period

Toni told traders that she likes to manually scan for trades, looking for 52-week gainers/losers as well as two-month highs/lows. She also gave attendees a variety of specific examples of trades using her parameters and shared some of the sources she uses, such as Telechart 2007, Prophet.net, and Trade-ideas.com.

She closed her workshop by sharing some of her insight into the current market, saying that she has been getting out of most of her position trades in the last couple of months due to momentum and has also been doing more short-term trades. She is looking for a correction in the Dow, maybe one more high before that. A third higher high would suggest a larger reversal. She told traders it may be a good time to fade out of a lot of trades.

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