American day traders earn over $116,000 a year; most earnings range between $68,000 to $198,000. This has you seeing dollar signs now, especially if you make a modest salary at your current job.

To make a decent living at day trading, you'll need to learn the ins and outs of the industry. For instance, you'll need to familiarize yourself with momentum trading.

If you're interested, keep reading to learn the basics of momentum strategy for day traders.

What's Momentum Trading?

Momentum trading's a popular strategy with day traders, so it's worth learning.

You take advantage of price trends in financial markets. Put your money in assets that have shown strong performance in the past since they're likely to continue on their upward trajectory. On the other hand, avoid underperforming assets since they're expected to keep declining in value.

How to Hone Your Momentum Strategy
Momentum trading sounds simple, but it's more challenging than just keeping your eye on markets. You'll need to do several things to hone your momentum strategy.

Define a Time Frame

You'll have to first choose the assets or securities you want to follow. They should show sufficient liquidity, so look at stocks, exchange-traded funds (ETFs), futures contracts, or currencies.

Once you've identified assets you want to follow, define a time frame. Opting for short-term time frames is optimal, so pick minutes, hours, or days.

Select a Momentum Indicator

To help identify momentum, you'll need technical indicators. They include:
  • Relative Strength Index (RSI)
  • Moving Average Convergence Divergence (MACD)
  • Stochastic Oscillator

These indicators can show you when an asset is overbought or oversold. This means there may be potential reversal points.

Look for Momentum Opportunities

With your selected momentum indicator, catch assets with intense upward or downward price moments. You can set certain value thresholds (both low and high) to filter out results.

If assets match your criteria, confirm with actual price action. Look for substantial volume or other technical patterns.

Set Your Entry and Exit Criteria

No right or wrong way to do this depends on your risk tolerance and trading style. Having some financial wisdom from Cheat Code can help you narrow things down.

You can use a specific percentage gain or loss or pick trailing stops or time-based exits. Whatever you select, ensure you have proper risk management techniques. This will limit potential losses and ensure you stay within the risk exposure you're comfortable with.

Add to Your Strategies for Day Trading

Having a momentum strategy can be significant if you're just starting with day trading.

However, rely on something other than this approach to make a profit. By learning different day trading strategies, you can diversify your actions, minimize risk, and maximize returns.

Were these momentum strategy tips helpful? Then keep reading our blog page.