Section 4 · Momentum Basics
Finding Your Setup
Only A-setups deserve your capital — everything else is a distraction
Grade Your Trades Before You Take Them
Not all trade setups are equal, and treating them as if they are is one of the most expensive mistakes a momentum trader can make. Experienced traders grade every potential setup as an A, B, or C before entering. An A-setup is the highest-quality trade: strong catalyst from a tier-1 news event (earnings beat, FDA approval), a clean and clear technical pattern with an obvious entry and stop, high pre-market volume confirming institutional interest, and the stock trading in the right overall market environment. A B-setup has most of the qualities but is missing one element — perhaps the catalyst is weaker, or the chart is slightly messy. A C-setup is a trade you're forcing: maybe the catalyst is thin, the chart is ambiguous, or you're bored and looking for action. The rule is simple: only take A-setups. Sit on your hands during B and C setups. The best traders are defined not just by the trades they take but by all the bad trades they don't take.
3 things to know
A-setup: strong catalyst + clean chart + high volume — all four pillars firing on all cylinders
B-setup: missing one element — acceptable only in specific conditions for experienced traders
C-setup: thin catalyst or ambiguous chart — not worth your risk capital, ever
Dive Deeper
Key vocabulary — tap each card
Practice
Scenario
It's 9:45 AM. Stock A has a strong earnings beat catalyst, is up 12% pre-market, has a clean breakout pattern above $50 with a stop at $47.50, and volume is 5× average. Stock B is moving but you can't find any news, the chart is choppy, and volume is average. What is the right action?
Did you know?
Pro tip: top momentum traders report that their best annual results often come from taking 30-40% fewer trades than beginners think necessary. More selectivity = higher win rate = better psychology = larger position sizes on A-setups = more profit.