What To Do When Momentum Suddenly Shifts

I’m nearing my final day in Italy and, as with most vacations, it feels like I’m leaving just as I was really starting to get used to my Mediterranean surroundings. 

That’s certainly how it’s felt in my trading account. I spent the first few trading days abroad either in the red or posting small wins. Despite that, I’ve gradually built up enough traction since then to reach my Italian Trading Challenge, logging the average salary in Italy—about $27,000—during my trip.

I was finally been able to post my first big green day this past Wednesday on the massive move in Vislink Technologies Inc VISL, the leading gap stock that morning by nearly 300%. 

Even though I came out ahead on the day by $8,000, my initial trade in VISL put me close to my $2000 daily max loss, which in addition to being a discouraging turn of events, would have also locked up my account. I might have guessed there would be an opening sell-off, since the stock was up almost 300% from its previous close and likely overextended.

I’m obviously glad I made the effort to stick with VISL for its massive move to high-of-day. 

It ultimately wasn’t a difficult choice for me to keep the chart for VISL on my monitor. It was moving on news, had exactly the right float and price profile and was a former runner from back in June. Additionally, the selling pressure on the open never became overwhelming, since the highest periods of volume were on green candles.

While my persistence in VISL paid off and has made me more bullish on the coming week, I understand that the transition from low to high momentum can be one of the toughest market environments for new traders to grapple with. There is already a massive learning curve in knowing when to be aggressive and when to play it safe or sit out of a trade entirely. 

Overlooking when this shift is occurring in the moment often results in missing leaving money on the table or good opportunities completely, both of which are extremely frustrating and can lead to revenge trading. 

Overall, my advice to traders struggling with knowing when to step on the gas in these periods of transition is to not force their trades, that it’s ultimately better in the long term to miss an opportunity than to rush into a loss.

However, if you are looking to be more proactive when momentum does shift, keep an eye on volume cues as I mentioned above as well as other momentum indicators like VWAP and especially MACD. While those will help firm up your sense of momentum shifts, I will stress again that missing a good opportunity always beats rushing half-cocked into a bad one.

Warrior Trading is a content partner of Benzinga