Day Trading Playbook: Finding and Trading High-Potential Breakout Stocks

Objective: Identify and trade stocks with high volatility and strong catalysts to maximize intraday profits while managing risk.

Timeframe: Primarily 7:00 AM to 11:00 AM (Eastern Time), focusing on pre-market and early regular trading hours, with occasional trading during Power Hour (3:00 PM to 4:00 PM) if momentum persists.

Step 1: Set Up Your Tools and Environment

• Stock Scanner: Use a stock scanner (such as MOMO Pro) to filter the market for stocks meeting specific criteria (e.g., percentage gain, price range, volume, float). Configure the scanner to:Sort by percentage change from close to identify leading gainers.Filter for stocks priced between $1 and $20 (ideally $5–$10 for optimal volatility).Monitor unusual volume (at least 5x the average daily volume).Track float (preferably under 20 million shares, ideally under 10 million in lukewarm markets).Set audio alerts to notify you when stocks meet your criteria.
• News Feed: Access a real-time news feed to check for catalysts driving price movements.
• Brokerage Platform: Ensure your broker allows pre-market trading (ideally from 7:00 AM, or 4:00 AM for advanced traders) and has low or no commission fees.
• Community Access: Join a trading community to gauge market sentiment and understand what other traders are watching.

Action: Set up your scanner and news feed on your phone or computer for quick access, ideally checking pre-market activity (starting at 6:45 AM) before trading begins at 7:00 AM.

Step 2: Identify Leading Gainers

Criteria for Stock Selection:

• Percentage Gain: Focus on stocks up at least 10% (bare minimum 4% to break standard deviation, but prefer 50%+ for high potential).
• Price Range: Target stocks priced between $1 and $20, with a sweet spot of $5–$10 for optimal volatility and affordability for small accounts.
• Catalyst: Look for a fundamental catalyst (e.g., earnings, FDA approvals, clinical trial results, or new contracts). Avoid stocks with no news unless a clear technical breakout (e.g., short squeeze) is evident.
• Unusual (Relative) Volume: Ensure relative volume is at least 5x the average daily volume to confirm strong trader interest.
• Float: Prioritize stocks with a low float (under 20 million shares, ideally under 10 million) to maximize price movement due to supply-demand imbalances.
• *MOMO Vector simplifies this process by aligning price & volume into one indicator.

Process:

• Open your stock scanner at 6:45 AM to review pre-market gainers.
• Sort by percentage change to identify the top 5–10 leading gainers.
• Check the news window for each stock to confirm a catalyst (e.g., earnings up 400% year-over-year, FDA approval, or new AI contract).
• Avoid stocks with undesirable catalysts (e.g., mergers, acquisitions, or buyouts) as they often lack volatility or have fixed value or even have heavy planned selling.
• Cross-reference volume and float to ensure high liquidity and potential for significant moves (e.g., 12 million shares traded on a 1.5 million share float indicates strong demand).

Action: Create a daily watchlist of 5–10 stocks meeting these criteria by 7:00 AM. Focus on the top 1–3 gainers for the highest probability of success.

Step 3: Assess Market Sentiment and Context

• Understand Sentiment: Gauge what other traders are watching through community discussions. MOMO Popular is another resource for seeing what people are actively engaged with. Stocks with high attention (e.g., leading gainers shared by brokers) are more likely to sustain momentum.
• Market Cycles: Recognize sector themes (e.g., pharmaceutical, AI, or Chinese stocks) that are currently "hot." Stocks in popular sectors often see amplified moves due to trader enthusiasm.
• Example: If a stock like BMNR surged 500% recently due to a stablecoin catalyst, look for similar stocks doing same thing(e.g., stablecoins, crypto, treasuries) as traders typically chase the next big mover.

Action: Monitor trading community chatter or broker alerts to confirm which stocks are getting attention. Note any sector trends to prioritize stocks aligned with current market enthusiasm.

Step 4: Verify Trade Liquidity

• Liquidity Check: Ensure the stock has sufficient volume (e.g., at least 100,000 shares traded, but prefer millions for high liquidity). Avoid stocks with very low volume (e.g., 4,000 shares) unless the catalyst and price action are exceptionally strong, and reduce share size to manage risk.
• Risk Management:Avoid penny stocks (under $1 and possibly under $2 as well) due to excessive volatility and pump-and-dump risks.Avoid stocks down significantly (e.g., -50%) due to bankruptcy risk.Avoid short selling for beginners due to unlimited downside risk (e.g., a $20 stock shorted with 1,000 shares could lose $480,000 if it rises to $500).
• Technical Breakout Confirmation: If no catalyst exists, check for a technical breakout (e.g., a stock breaking a long-term downtrend with a new high candle). This may indicate a short squeeze or strong technical momentum.

Action: For each stock on your daily favorites/watchlist, confirm volume, a real catalyst, and manageable sizing. Eliminate stocks that don’t meet these standards.

Step 5: Plan Your Trading Window

• Primary Trading Hours: Focus on 7:00 AM to 11:00 AM (Eastern Time), as this is when pre-market momentum and early regular trading offer the most volatility.
  • Pre-Market (7:00 AM–9:30 AM): Trade stocks gapping up with news released at the top or bottom of the hour (e.g., 7:00, 7:30, 8:00, 8:30, 9:00).
  • Early Regular Hours (9:30 AM–11:00 AM): Continue trading stocks with strong pre-market momentum or new catalysts.
• Power Hour (3:00 PM–4:00 PM): Trade only if a stock remains exceptionally strong or new catalysts emerge. Avoid low-volume periods (e.g., midday) unless an anomaly stock is active.
• After-Hours (4:00 PM–8:00 PM): Generally avoid due to declining volume and reduced momentum, except in very hot markets (e.g., GameStop-era short squeezes).

Action: Schedule your trading to start at 7:00 AM, focusing on pre-market and early regular hours. Be prepared to stop by 11:00 AM unless momentum is exceptionally strong.

Step 6: Execute Trades with Discipline

• Wait for Confirmation: Don’t predict stock movements. Wait for stocks to hit your scanner with significant price action (e.g., up 30–50% in 5 minutes) before entering.
• Entry Points: Use technical analysis (e.g., candlestick patterns, moving averages) and Level 2 to identify entry points and resistance.
• Position Sizing:
  • For high-liquidity stocks (e.g., 12 million shares traded), use standard position sizes based on your account (e.g., 1000 shares of a $10.00 stock for a $10,000 position).
  • For low-volume stocks (e.g., 100,000 shares traded), reduce share size to mitigate liquidity risk.
• Exit Strategy: Set profit targets (e.g., 15% return in 10 minutes) and stop-losses to limit losses. Exit when momentum fades (e.g., volume declines, or traders lose interest).
• Risk Management:
  • Never risk more than 100% of your position (the maximum loss when buying long).
  • Avoid over-leveraging, especially on large-cap stocks with small percentage moves (e.g., 0.5–1%).

Action: Enter trades only when stocks meet scanner criteria and show strong price action. Use technical analysis for general entries and exits, and adjust position sizes based on liquidity.

Step 7: Optimize Trading Frequency

• Hot Markets: On days with strong momentum (e.g., multiple stocks up 50%+ with catalysts), trade aggressively to maximize profits. These days account for ~80% of monthly profits.
• Neutral to Negative Markets: On slow days, be patient and take zero or minimal trades (1–2 small positions to test the market). Avoid forcing trades.
• Daily Routine:
  • Check scanners at 6:45 AM for pre-market movers.
  • Trade actively from 7:00 AM to 11:00 AM if criteria are met.
  • Review performance daily and adjust strategies based on market conditions.

Action: Lean into hot market days with aggressive trading and scale back on cold days to preserve capital. Use MOMO Meters to identify ebbing and flowing markets to help as well as major indexes - QQQ, DIA, SPY, IWN.

Step 8: Maintain Zen-Like Reflection, Education & Review

• Education: There are 100's of ways to execute trades and uncover opportunities. Balance and alignment with your emotions and goals is what you must learn sooner than later.
• Community Engagement: Stay active in trading communities to learn from others’ successes and mistakes. Sharing your wins & losses (more important), lets you understand what you did wrong as well as help others (good karma).
• Performance Tracking: Review your trades daily to identify patterns in winners and losers. Use automated tools to simplify and force accuracy in numbers. Focus on improving discipline and adherence to criteria.

Action: Get the tools and determine if you have the system and tracking software mentioned to reach your goals based on this playbook.

Important Notes

• Avoid Common Pitfalls:
  • This is a low float day trading strategy. Don’t trade large-cap stocks (e.g., Apple, Tesla) daily due to low percentage moves and high leverage requirements.
  • Avoid penny stocks (under $1 and even under $2) due to pump-and-dump risks and extreme volatility. Also consider staying away from Asian based stocks trading on US exchange.
  • Short selling is a viable option after an extended run and afternoon fade. Caution due to unlimited downside risk.
• Psychology: Embrace the momentum of leading gainers, even if they seem “overextended” (e.g., up 50–100%). Market sentiment often drives further gains and your tools and approach set you up for better success.
• Patience: Spend more time waiting for the right stock than trading. Discipline is key to long-term success.
• Example Trade:
  • Stock: RCON, up 50% at $5.75 on 7/29/2025 (from $3 prior close).
  • Float: 13 million shares
  • Unusual Volume: 28 million shares (11x relative volume).
  • Catalyst: AI
  • Action: Buy 5000 shares at $5.75($27k position). and rip through resistance for breakout to $6.50 = $3750 profit.

This playbook provides a structured approach to day trading, focusing on stock selection and disciplined execution. Always trade within your risk tolerance - e.g. how much are you comfortable losing a day or trade.

MOMO Pro is tailored for uncovering scalps as mentioned above as well as longer time-framed momentum and swing trades. If you are interested in trying, visit us at mometic.com.