Value Trading versus Momentum Trading

[Grey1]

VALUE TRADING Versus MOMENTUM Trading

Generally speaking there are two ways of day trading market..

1) Momentum trading
2) Value trading

Momentum trading is when trader jumps on the market momentum / buys high , sells higher ( all kind of pull backs into momentym still classed as Momentum trading ).. A momentum trader is always in the heart of the action .. He is a trend trader ....

Value trading is when trader takes a positon based on current value of the stock compared to a bench mark.. A value trader does not want to be part of the current success. He stays out when every body is buying .. He however buys LOW sells HIGH

Which one are you ?

 

[shogun]

me, a value trader

gray1 is it possible with trade station to chart the actual difference of two stocks/indexes. ie if charting the difference of the s&p with the dow the chart would only show the actual difference currently 710,

if you know what i mean.

 

[Grey1]

Yes it is but you might be better off to hedge two OScillators against each other ( the difference of value between two oscillators) .. The pair trade is a high probable/very low risk trade

This is an example KLAC against MEDI

Two oscillators are hedged against each other .. The red line on both charts are diverging to a very OB and OS levels...

Do we care where market heads after the hedging ? Not really ..

This is low risk value trading technique..

PS:- this strategy does not use VWAP ...

 

[Trader333]

Overall I am a value trader and in fact more so now than ever. When I have tried being a momentum trader I have never been that successful.

shogan,

Yes it is possible to do this in Tradestation but requires writing an easylanguage indicator.


Paul

 

[CityTrader]

Not sure you can be a day trader and a value trader at the same time.. surely the two are mutually exclusive?
personally I'll take value positions for a few days at a time, and go against the trend for a day trade ( i.e selling a stock that's appears to be "blowing out" on a rally) - obviously not in the same stock!

 

[Trader333]

CityTrader,

I dont see why you cannot be a value trader and trade intra-day. I guess it will depend on how you assess value and I have clear definitions for that in my daytrading that are proving to be successful on a consistent basis.


Paul

 

[Grey1]

City

Quote "Not sure you can be a day trader and a value trader at the same time.. surely the two are mutually exclusive? "

Can you expand on that.. what kind of value modelling you have in your mind which makes momentum/Value trading mutually exclusive ?

What has time frame got to do with it any way ?

 

[CityTrader]

I just feel that to judge a stock a "value "play necessitates holding it until the correction takes place, i.e. the market also starts to recognise the value of the siuation and (say) the discount to the stocks peers/sector narrows. Now to try and put additional constraints on that stock selection by imposing a one day time frame, surely makes it almost impossible? I didn't say value and momentum were mutually exclusive, but that value trading/investing combined with day trading are mutually exclusive. (IMHO!)

 

[bonsai]

Paul
are you talking about 'daily value' ? or 'company residual value'
or dcf ?
or what?
what do you mean by value ?

 

[Trader333]

CityTrader / Bonsai,

What I mean is that during the trading day there are a number of trading opportunities that come about because the instrument is either overvalued or undervalued when compared to a method I use to measure it. There are then triggers to alert me to the optimum time in which to trade the instrument for minimal risk on entry.

It is not stochastics or anything like that and I am not prepared to give out the details of exactly how I do it but it does work on a consistent basis.


Paul

 

[bonsai]

dont need /want the details
just wanted to differentiate between long term value
and daily value and identify what you were talking about in your earlier post.

 

[Grey1]

City ,,

It sounds the valuation model you have in your mind is based on fundamental principles ( low / High price to Book value, CAPM ...Sector T- Modeling ) which I was not referring to.. Quite correctly ,these models are all long term and have no room for lower time frames..

Value trading I was referring to , was the choice between jumping on trend and trying to be part of the momentum or quietly being on the side line and choose those instruments / stocks which have deviated more than X amount from their VWAP to make them the bargain of the life time as Dell boy would say ..

Why did I post this thread?

Most traders have the habit of parroting some one else's findings such as TREND IS YOUR FRIEND ... TRADE THE TREND.. IF MOMENTUM IS UP THEN GO WITH THE TREND AND JUMP ON THE TREND.. and stuff like that...

These traders are risking their cash in the hope of momentum or trend to be in their favor long enough to make a few $$$, which in my opinion is totally WRONG.. These traders buy HIGH to sell HIGHER .. Well it is a great idea.. if momentum continue..
To BUY HIGH AND SELL HIGHER THEY BUY EXACTLY WHEN THEY SHOULD BE SELLING .. i,e into the MOMENTUM ..

Value trading ?

Value trading is the art of buying stocks much cheaper than average price traded on the day denoted by their VWAP ..
Traders should learn this basic technique and be a bargain hunter than hero momentum trader..


Warren buffet did not jump on the trend.. He had a valuation model based on price and not the momentum .. He bought low and sold high..


PS:-- Use VWAP + L2 for your entry and you wont go wrong . you might not get many trades on the day but who wants 200 trades a day any way .. as long as we come out profitable by the end of the day ..

 

[stevet]

stocks only exist, once issued, for gambling with

and you have a choice to make money with them as the casino does or as the punters do

but alloting any concept of value to them - over and above the actual profit you got by already having actually bought and sold them is to my mind dangerous

so to make money in trading - make sure your methodology is giving you some sort of edge - exactly as a casino does

but that means having a fundamental understanding of how stocks are priced and not a fundamental understanding of valueing a company

 

[CityTrader]

Trader333 would you, if your system has put you into a stock, and the correction hasn't occurred by the end of the day, then run that position? i.e. would you day trade become a slightly longer term trade because the correction never happened? OR would you stick with your day trading rule and close it? - Personally I would enter a trade like that with the intention of running until it came good - if that happened to be within one trading day then so be it.

Grey1 - the old market adages such as " the trend is your friend" and " buy on rumour, sell on fact" exist because on a simplified level- they work. Over the years Jobbers came up with these adages to justify positions, help in training, and because to a large degree they worked

 

[Trader333]

CityTrader,

The method I use to trade does not lend itself to holding a position overnight. This is because the approach used to determine stock value begins afresh at the start of every new trading day.

stevet,

The method I use does give me an edge from a logical as well as practical standpoint, although I am not going to prove this by discussing it in detail.


Paul

 

[Grey1]

City ,

Quote "the old market adages such as " the trend is your friend" and " buy on rumour, sell on fact" exist because on a simplified level- they work ",,

I would appreciatre if you give me a model ( statistical. mathematical , Technical ..) for birth of the trend and evenmore important .. ITS EXHAUSTION ..

buy in rumour, sell on fact does work because you are selling into momentum exactly what i am on about ..

 

[Finlayson]

Traders should learn this basic technique and be a bargain hunter than hero momentum trader..

Grey1,
not knocking your technique as I understand it & the logic behind it, but I find this a bit of an odd statement to put forward. surely as trends exist in markets, then the ability to read these makes trading them a successful method.

yes the method u talk of makes sense, but surely a market/stock has to move away from its average before it can move back.....so as long as u have the skill to trade either successfully.........either will be successful.

also to say 'buy high sell higher' is wrong...surely this is relative to what u r buying higher than when talking of price & is a bit of a vague statement

Jay

 

[Grey1]

Fin,

It is great to trade the trend and let trend to be your friend but using market momentum to jump on the band wagon is suicide.. and no one till this moment has been able to show a model of momentum exhaustion so that traders could use it to avoid taking a LATE position ..
This is the bottom line in my opinion .. if no one can come up with an exhaustion model to signal the end of the trend then the strategy works not more than a coin tossing strategy at BEST .. YOU GET ON TREND HOPING IT WOULD CONTINUE.. 50/50 at its best ...

Momentum trading is very dangerous.. Great if you catch the start of the trend but one needs TO BE SHOWN HOW .. Perhaps from the 5000 members some one come up with an idea..

Buy high sell higher :--

When you buy high hoping to sell higher , you are again buying into momentum .. Same criticism

 

[CityTrader]

Grey1 you seem a little bit angry mate? I detect some sarcasm in your post..could you be the new mma? whatever. I never said I was a momentum trader. Your original post was about value Vs momentum DAY TRADING. I made the personal observation, that I 'm not sure you can day trade on a value driven basis. Paul ( trader333) has explained how he does it. I then threw a couple of old Stock exchange floor adages in for good value. ( don't worry I'll spare you the sport of having any more to savage) If you don't like the content, don't shoot the messenger- huh?

City ,

Quote "the old market adages such as " the trend is your friend" and " buy on rumour, sell on fact" exist because on a simplified level- they work ",,

I would appreciatre if you give me a model ( statistical. mathematical , Technical ..) for birth of the trend and evenmore important .. ITS EXHAUSTION ..

 

[Finlayson]

Grey1

yes I would agree with u there & understand more of what u r saying, it is essential in any trade to be in some form of trend otherwise that trade is going to lose.

the skill as I believe it is recognising when there is potential for a trend within your specific time frame, with the potential for enough reward & then to find the lowest risk point of entry.......this all sounds common sense but is surely true.

All u can do Is Judge what u feel is the sentiment of your chosen market at any given time...then if u feel u have it ...select your entry & then manage the trade.

Momentum trading is very dangerous.. Great if you catch the start of the trend but one needs TO BE SHOWN HOW .. Perhaps from the 5000 members some one come up with an idea..

not sure about the momentum comment, but yes agree about recognising the trend as this is what I have worked on since the beginning.

Re: the buy high sell higher.......still think this is relative to your particular methods so doesn't really come in to it unless u state what u r buying higher than

Jay