How The Intra-Day Momentum Method Helps You Define Patterns

In addition to determining daily direction, The Intra-Day Momentum Method helps traders define patterns mathematically. The ultimate goal is to determine if those patterns have been historically significant. Here are a few examples of failed as well as successful patterns. The idea is that once we have established the daily direction, a pattern can be defined mathematically. This will allow you to determine how significant it has been historically. These parameters will enable you to control your risk. Above all, you will control your risk through risk management and position-sizing formulas.

Failed Double Bottom – QQQ

Failed Double Bottom – QQQ 9-8-20

The QQQ reached the ML1 Level up shortly after 10 am. Which tells us that the daily direction historically would be up from the OPEN. This enables us to define many different patterns that may occur during today’s trading. Here we demonstrate that a double bottom which would be defined:

  • Directional Move to ML1
  • A Counter-Trend Move Back to the Open or the Low of the day
  • The orange line identifies the base for the double bottom

The green shaded area is where a long position would have a reasonable chance of success. Below the red line, the probability of a close above the ML1 diminishes greatly.

Failed Pullback from ML1 Bottom – QQQ

QQQ – Failed Pullback from ML1 9-8-20

Once again, the QQQ reached the ML1 Level up around 10 am. It then pulled back and later failed. The green shaded area is where a LONG position would have a reasonable chance of success. Once again, a move below the red line greatly diminishes the chance of a close above ML1.

Double Top – DIA

DIA – Double Top – 9-8-20

The DIA reached the MS1 Level Down quickly. The ‘Fast Move’ often turn out to be false moves. However, it does not change the daily direction until a move above the OPEN has been confirmed. Above all, the red shaded area provides a the trader with a range to place a trade with a reasonable chance of success. The double top is defined by:

  • Directional Move to the MS1
  • Move back to the High/Open of the Day
  • Orange Line is the Base for the Double Top

Lastly, a reasonably good area for an Exit is above the Green Line, as the probability of a CLOSE below the MS1 diminishes if this level is reached.

Pullback – DIA

DIA – Pullback from MS1 Level Down – 9-8-20

The DIA reached the MS1 Level down very quickly off the OPEN. The DIA then rallied back to the Open/ High of the day, creating an opportunity for a SHORT position in the Red shaded area.

A pullback is defined by:

  • The initial move to the MS1 Level down
  • A counter-trend move against the MS1 Level to a defined Level

The area of possible entry for a SHORT position is shaded in ‘Red’. Above all, due to the historical significance of the levels, the Pullback provides an entry for a reasonable chance for success. The probability of a Close below the MS1 Level down diminishes greatly when the green line is reached.

Trading the Trend Day

For traders looking to trade a ‘Trend Day’, entry close to The Intra-Day Momentum Levels would be a good starting point to look for entry. Simply because the strongest stocks do not pull back all that much. Trend days occur about 20% of the time. Therefore if one is anticipating a ‘Trend Day’, the trader would want to keep his stop-loss tight. A good idea for a pullback that still has a reasonable chance of becoming a trend day would be half-way between the ML1/MS1 and the Open. Strong markets do not tend to pull back all the way to the Open of the day.

Managing Risk

Professional traders never risk more than 1-2% of their account on any trade. Many of the best do not risk more than 1-2% on any given trading day. Once you know the necessary components, you can determine how much you can risk on any given trade. Then you can size your position correctly so that you are within your risk parameters.