What I've Learned Trading Stocks Like Helios And Matheson

If you’ve followed my trading at all, or have read my blog, you know that I love trading momentum stocks. One of my favorite strategies is catching stocks as they break out on high volume, getting in quickly, and exiting for a profit just before the momentum ends. This is the core of my daytrading strategy.

The good news is, moves of this kind happen every day. Generally, they occur in small caps and penny stocks, which is why I do most of my trading in stocks priced in the $1-$10 range. I’ve found these have the best potential for quick breakouts.

This is also why I only trade for the first few hours of the day. The price discovery that takes place from 9:30-11 am is when these moves are most common.

In the last few weeks, a classic example of a momentum trade has played out on Wall Street with Helios and Matheson Analytics Inc HMNY. This is how I approach a stock like that.

On The Way Up

Prior to this recent breakout, HMNY spent the entire year in the $2-$4 range, so it’s in my wheelhouse. When I see that over 1 million shares trade at the open on Sept. 20 and the stock breaks out above $7, I really take notice. That stock didn’t hit its high of the day until two hours later. This formation presents a great trading opportunity that day.

Normally, that would be the end of the trade. But I keep my eye on it and notice that the stock closes higher for several more days, so it remains on my radar.

Then it happens again five days later. At this point, I watch to see if the trend continues. Will the stock keep making new highs? Or will it break back down?

In this case, the trend holds steady in the following days. Old resistance becomes new support, which tells me the trend is still intact. By the time the big breakouts occur — October 9-11 — I have my sight set on the stock and am well prepared to jump in when it moves higher.

On The Way Down

On Oct. 11, HMNY hits a high of $38.86, up 600 percent from its original move on Sept. 20. The next day is when the trend reverses. I remain aware of its moves as the stock breaks down enough that it gives back three day’s worth of gains.

At this point, I’m capturing alpha on the downside. While volume has lightened, every day the stock closes lower means the trend is intact. As of this writing, it’s closed lower six of the last eight days. I’m still not averse to jumping in short after the open, waiting to see if my downside targets hit, then exiting quickly. 

The Takeaway

The best part of this strategy is it’s easily repeatable. I can easily do this multiple times a day for any stock that’s gapping up or down on volume.

The trick is to have a target on the upside and downside. This enables me to take profits when I get them and cut losers quickly.

Moves as big as the one in HMNY don’t come around every day, but when they do they can be extremely profitable. As long as you know how to play them.

Disclosure: Warrior Trading is an editorial partner of Benzinga.