How to Find Swing Trading Style Runs

Identify Momentum & Velocity Market Conditions Using Indicators

When the Stock Market moves with plenty of momentum and velocity activity, it provides opportunities for Swing Traders to hold a trade through a 1–10 day run up and then exit before the stock encounters profit taking.

Below is a stock chart example with a Velocity Run.

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Swing Trading requires the ability to quickly distinguish between a “Momentum Run” and a “Velocity Run”, which are both Swing Trading Style Runs. This is because each is different in how long you can hold the stock, how far it is likely to move, how it will behave when it meets resistance, and where to place Trailing Profit Stops. Many Swing Traders exit these stocks too soon.

If a Swing Trader exits too soon, they miss out on the significant profit potential Momentum Runs create. Therefore, it is critical to learn to distinguish between a Momentum Run and a Velocity Run. When a trader can see the distinct differences, the proper Trailing Profit Stops can be determined, which will allow the stock to run as far as it will go before exiting the trade.

Instead of settling for a 10- or 25-cent profit, Swing Traders can earn 3–20 points over a few days’ time with lower risk.

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A Velocity Run, which is a Swing Trading Style Run, has several key elements which include the following:

  1. Stock Volume continues to rise during the run up, as shown in the top chart indicator window below price.
  2. Stock Volume declines before price reverses most of the time, again as shown in the top chart indicator window below price.
  3. Price does not overlap, and gaps are common.
  4. A Shift of Sentiment™ pattern occurs in the large-lot versus small-lot Balance of Power (BOP) indicator, as shown in the second chart indicator window below price.
  5. There is a Volume Oscillation Quiet Accumulation pattern, as shown in the third chart indicator window below price, which is the Time Segmented Volume (TSV) indicator. It is the green line rising above its moving average line prior to the stock moving upward.
  6. The MoneyStream (MS) indicator is rising in the bottom chart indicator window below price, as shown with its blue line above its moving average line.

The stock chart example above also has one of the many new types of bottoms, called a “Basing Bottom” Formation. It tends to form as giant Buy Side Institutions using Alternative Trading Systems (ATSs) off the exchanges to place their orders create Dark Pools as they buy the stock incrementally over extended periods of time. These are called Dark Pool Buy Zones™ in the candlestick pattern. The Balance of Power indicator in the second chart indicator window below price reveals the accumulation of the giant Buy Side Institutions. The Velocity Run is a good Swing Trading Style Run, and it is marked by the green arrow on price.

Summary

Velocity Runs are unique to Momentum and Velocity Market Conditions, and they are excellent Swing Trading opportunities. Entries are made as the bottom starts to move up.

The Trailing Profit Stop must be a Velocity Run Trailing Profit Stop in order to protect more profits due to the higher energy in the market and the higher risk of sudden profit taking.

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Trade Wisely,

Martha Stokes CMT

TechniTrader technical analysis using a TC2000 chart, courtesy of Worden Bros.

Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses

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