Learn to Trade Momentum Stocks chapter-by-chapter summary
Contents
Chapter 1: The Power of Trend Following
Momentum trading is based on a simple yet powerful idea: stocks that are already going up are more likely to keep going up — at least for a while. Instead of trying to predict reversals or buy at the bottom, momentum traders ride existing trends. This method is rooted in human behavior — when a stock gains popularity, more investors jump in, driving the price even higher. Trend following allows you to align your trades with the prevailing market psychology.
Unlike many strategies that lose effectiveness as market dynamics shift, momentum trading has stood the test of time. It has consistently provided traders with opportunities for significant gains by sticking to stocks that exhibit strong directional movement. The key is not to outsmart the market but to follow its lead. By doing this, traders can minimize emotional decision-making and focus on repeatable patterns in price action.
Chapter 2: Where to Find Momentum Stocks
To succeed with momentum trading, you need to identify the right kind of stocks. These are typically companies experiencing rapid growth — either in terms of revenue, product adoption, or market attention. Two key categories often yield strong momentum candidates: New Technology Companies (NTCs), which innovate in fast-evolving sectors, and Formula Companies, which apply proven business models to grow consistently. Examples include tech startups or expanding consumer brands.
What these companies usually have in common is revenue growth of more than 20% year over year. This level of growth attracts institutional interest, news coverage, and investor enthusiasm — all of which fuel momentum. Tools like stock screeners can help you filter for companies with high volume, recent breakouts, and exceptional fundamentals. The goal is to catch stocks that are already performing well — not to guess which ones might eventually take off.
Chapter 3: Exact Buy & Sell Rules
A major strength of Kratter’s approach lies in its clarity. He recommends a simple rule-based system using moving averages — a strategy known as the Golden Cross. You buy a stock when its 50-day moving average crosses above its 200-day moving average, signaling a strong upward trend. This rule removes guesswork from the equation and helps you avoid emotional trades.
On the flip side, when the 50-day average crosses back below the 200-day, it’s time to sell — this is known as the Death Cross. These signals aren’t perfect, but they’re effective for capturing large chunks of a trend. They also help prevent holding onto losers for too long. Momentum traders don’t aim to predict tops and bottoms — they aim to capture the “meat” of the move and exit before momentum fades.
Chapter 4: Position Sizing & Risk Management
One of the most common reasons traders fail is poor risk management. Even with a great strategy, a few bad trades can wipe out your capital if you're not careful. That’s why Kratter emphasizes limiting your risk to 1% of your portfolio per trade. If the trade goes against you, it won’t seriously hurt your overall capital — and that keeps you in the game long enough to succeed.
This level of control comes from smart position sizing and the use of stop-loss orders. A stop-loss automatically exits your position if the price falls to a certain level, preventing small losses from turning into disasters. By adjusting your position size to reflect your risk tolerance and the volatility of the stock, you maintain consistency in your approach. Discipline, not aggressive trading, is what leads to long-term success.
Chapter 5: Long-Term Holding for Big Gains
Momentum traders often get labeled as short-term speculators, but Kratter shows that this strategy can be applied over longer time frames too. If a stock continues to trend upwards and doesn’t break below key moving averages, there’s no reason to sell. Some of the biggest gains come from stocks that keep trending for months or even years — and patient traders who stay on board can multiply their returns.
The trick is to re-evaluate regularly. Just because a stock has performed well in the past doesn’t mean it will keep doing so forever. By checking moving averages, volume patterns, and price action, you can determine whether the trend is still strong. If it is, stay in. If momentum fades or breaks down, exit without hesitation. This method allows you to hold your winners while cutting losers early — a key trait of successful traders.
Chapter 6: How to Short Momentum Stocks
While most momentum traders focus on buying rising stocks, there’s also money to be made on the downside. Shorting is a strategy where you profit from falling stock prices — but it comes with higher risk and should be approached with caution. The same principles of momentum apply: find stocks that are breaking down with strong volume and consistent downward movement.
Kratter emphasizes discipline and timing when shorting. Enter trades on weak rallies (called “dead cat bounces”) and use the same moving averages in reverse — for example, if a stock's 50-day average drops below the 200-day, that could signal a good short setup. But always set a stop-loss, as losses on shorts can become unlimited if the stock reverses hard. Beginners are advised to practice long setups first and move into shorting only once they have experience.
Chapter 7: How to Get Started
The final chapter is all about taking action. Kratter recommends starting with paper trading — using simulated accounts to practice strategies without risking real money. This allows you to gain confidence and fine-tune your system in a risk-free environment. Once you're consistent on paper, you can transition to trading with small amounts of real capital.
In addition, he encourages joining a trading community or education platform where you can learn from others, ask questions, and stay updated on market trends. The journey to becoming a successful momentum trader doesn’t require expensive software or insider tips — it requires commitment, discipline, and patience to stick to a well-defined system.
Learn to Trade Momentum Stocks 5-minute summary
Introduction
Learn to Trade Momentum Stocks is a practical guide for beginners who want to profit from fast-moving, high-growth stocks. It teaches a simple and effective momentum trading strategy using tools like moving averages. The book emphasizes risk management, clear entry and exit rules, and disciplined execution. Ideal for anyone looking to build confidence and consistency in stock trading.
Chapter 1: The Power of Trend Following
- Momentum trading capitalizes on stocks that exhibit strong, sustained price movements.
- Kratter asserts that this approach remains consistently effective, leveraging the herd mentality of investors.
- He emphasizes that, unlike other strategies that may become less effective, momentum trading has consistently shown a dependable ability to generate profits over time.
Chapter 2: Where to Find Momentum Stocks
Ideal candidates are companies with rapid revenue growth, often categorized into:
- New Technology Companies (NTC): Companies introducing innovative technologies.
- Formula Companies: Businesses with a replicable business model, like Ulta Beauty.
These companies typically exhibit annual revenue growth rates exceeding 20%.
Chapter 3: Exact Buy & Sell Rules
Kratter advocates for the "Golden Cross" strategy:
- Buy when the 50-day moving average crosses above the 200-day moving average.
- Sell when the 50-day moving average crosses below the 200-day moving average.
This approach aims to capture significant upward trends while minimizing losses.
Chapter 4: Position Sizing & Risk Management
- Risk management is crucial.
- Kratter recommends risking no more than 1% of your total portfolio on a single trade.
- This can be achieved by setting stop-loss orders and adjusting position sizes accordingly.
Chapter 5: Long-Term Holding for Big Gains
- For long-term gains, Kratter suggests holding onto stocks as long as they maintain upward momentum.
- Periodically re-evaluate to ensure the trend persists.
Chapter 6: How to Short Momentum Stocks
- Shorting involves betting against stocks that are declining.
- Kratter advises caution, emphasizing the importance of identifying stocks with strong downward momentum and setting appropriate stop-loss orders.
Chapter 7: How to Get Started
- Kratter encourages readers to begin paper trading to practice the strategies without financial risk.
- He also invites them to join the Trader University community for ongoing support and education.
Learn to Trade Momentum Stocks 20-minute detailed summary
Chapter 1: The Power of Trend Following
Momentum trading works by following existing price trends. Rather than guessing when a stock will reverse, traders wait for confirmation that a stock is already trending up — and then join the move. This approach is simple but powerful because it aligns your trades with market sentiment, investor behavior, and institutional momentum.
Kratter highlights the psychological basis for trend following. When a stock starts rising, more investors take notice and jump in, creating a self-reinforcing cycle. This is sometimes called the “herd effect.” As more buyers enter, the price keeps rising, making it profitable for early momentum traders.
Key Points:
- Don’t predict — follow confirmed trends.
- Momentum works because of crowd psychology.
- Stick with stocks that show strong, sustained moves.
Chapter 2: Where to Find Momentum Stocks
Finding the right stocks is critical. Kratter suggests focusing on companies with strong revenue growth, typically above 20% annually. These include fast-growing tech firms or scalable businesses with proven models. These companies attract attention from institutions, analysts, and retail traders — fueling their momentum.
He breaks momentum stocks into two categories:
- New Technology Companies (NTC): Innovative companies disrupting industries.
- Formula Companies: Businesses with repeatable models (e.g., Ulta Beauty, Starbucks).
What to Look For:
- Strong earnings and revenue growth
- High trading volume and recent price breakouts
- Stocks making 52-week or all-time highs
Chapter 3: Exact Buy & Sell Rules
Kratter uses a simple but powerful technical method: the Golden Cross strategy. You buy when the 50-day moving average crosses above the 200-day, signaling an uptrend. You sell when the 50-day crosses below the 200-day, signaling the trend is weakening. This helps avoid emotional decisions and keeps trading systematic.
He emphasizes not entering trades too early. Wait for the crossover and confirmation in volume. This increases the odds that you're entering during the start or middle of a sustained move, not near the end.
Buy/Sell Rules
- Buy: 50-day MA crosses above 200-day MA
- Sell: 50-day MA crosses below 200-day MA
- Confirm with volume and price strength
Chapter 4: Position Sizing & Risk Management
No matter how good your strategy is, poor risk management can destroy your account. Kratter stresses risking no more than 1% of your total capital per trade. This prevents a few losing trades from causing major damage and gives you staying power in the market.
Use stop-loss orders to automatically exit losing trades. This removes emotion and allows for consistent execution. You also need to adjust your position size based on the stock’s volatility and your account size.
Risk Management Tips
- Never risk more than 1% per trade
- Use stop-loss orders to limit losses
- Avoid oversized positions — protect your capital
Chapter 5: Long-Term Holding for Big Gains
Momentum trading doesn’t have to be short-term. Kratter explains that some of the best gains come from holding onto strong stocks for months or even years. If the stock continues to trend above the moving averages, there’s no need to exit early.
He advises traders to periodically reassess their positions. If the trend weakens or the price dips below key averages, then it may be time to exit or trim. But as long as momentum is intact, let your winners run.
Holding Strategy
- Ride long-term trends as long as momentum persists
- Add to winners on pullbacks
- Exit only when the trend breaks or slows significantly
Chapter 6: How to Short Momentum Stocks
Shorting allows traders to profit from falling stocks, but it carries more risk. Kratter recommends using the same trend-following principles in reverse. Look for a Death Cross (50-day moving average crossing below the 200-day) as a signal to enter short positions.
Shorting is best done when a stock is in a clear downtrend and any upward moves (rallies) fail quickly. Kratter urges caution, noting that losses on short trades can be unlimited if a stock suddenly spikes. Beginners should master long setups before trying short ones.
Shorting Tips
- Use Death Cross as a short signal
- Look for failed rallies and volume on down days
- Always use stop-losses to protect against surprise spikes
Chapter 7: How to Get Started
Kratter encourages new traders to begin with paper trading — simulated trading that uses real-time data but no real money. This helps you build confidence, test strategies, and avoid costly mistakes early on.
Once you’re consistently profitable on paper, move to small trades with real money. Stick to your rules and avoid emotional decisions. He also recommends joining a trading community to stay updated and learn from others.
Getting Started Checklist
- Practice with paper trading before risking money
- Start small and scale as you gain confidence
- Join a trading group or course for support and feedback
