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Momentum trading
In momentum trading, traders tend to focus on stocks that are currently moving
in one direction a significant amount. Those who trade based on momentum
typically only hold their positions for a few minutes at a time, though it can be
longer depending on the speed at which the stock is moving.
Successful momentum trading requires the trader to analyze the list of stocks
they favor by watching the charts, particular the momentum indicator which
visualizes the total net change of a stock’s closing price over a predetermined
period of time. The momentum line is typically show in tandem to the price line
and it shows a zero axis with positive numbers indicating an upward trend and
vice versa. This indicator will typically determine an incoming breakout which
means that even 2 periods of sustained momentum will be enough to cause a
breakout.
Once a potential momentum trade is found, you don’t need to jump on it right
away as this type of trend is typically likely to continue for more than a few
periods. It is important to keep an eye on the stock in question once you have
made a move, however, as the second the trend seems to be dying out you need
to sell to keep from losing a slice of your profits. The goal here is to find the
saturation point which is where the number of orders starts to increase and the
overall volume of bidding begins to slow. This point doesn’t mean the
momentum is stopping, it is just a good indicator that it is slowing down.

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Butterfly spread
When it comes to trading options many day traders remain perfectly content with
simple puts and calls when it comes to making money from market indecision or
possibly using covered calls as a means of generating income. There are more
promising alternatives available, however, and one of these is the butterfly
spread. This strategy allows traders in the know to pinpoint the traders that are
likely to generate the greatest amount of profit for the lowest amount of risk. The
modified butterfly spread, also discussed below, takes things up a notch.
Standard butterfly spread: 
The perform the standard butterfly spread you are
going to want to utilize 3 different puts or calls in a 1, 2, 1 configuration. The
first call you place is purchased at a strike price that is similar to the current
price of the underlying asset, the second pair is purchased at an increased price
and the final call is purchased at an even higher price. The same strategy can be
used for puts though the price descends rather than ascends.
What you end up with is a neutral trade that is sure to generate a profit assuming
the underlying asset remains somewhere in the range of the strike prices. It is
also useful if you are interested in profiting from a directional trend as long as
you set all three either below or above the current strike price depending on if
you are purchasing puts or calls. Assuming it is done correctly, this strategy
minimizes risk to a defined level and offers a reasonably reliable potential for
profit and the potential for a significant rate of return as well.
Modified butterfly spread: 
The more advanced form of this strategy is called the
modified butterfly spread and it has similar goals to the standard version, though
it differs in a few key ways when it comes to execution. The biggest difference is
that it offers you the opportunity to maximize your profit if put trades are bullish
and call trades are bearish. This is done via a ratio of 1, 3, 2 which leaves just the
first put or call at the breakeven point and triples up on the higher/lower price
and doubles up on the final price point.
For example, say that an underlying asset is currently being sold for $194 per
share. To activate the modified butterfly, you are going to want to activate the
first put at $193.50, three more at $190 and then the final pair at $175. The key
takeaway from this example is that puts are selling at 5 points beneath the at-the-
money point and another at 20 points below. As the price is currently at $194
this means that you will be able to breakeven if the price drops to $184 which
means that the strategy generates 5 percent worth of downside protection.

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This means that the underlying asset in question would need to drop a total of
more than 5 percent before any type of loss would occur. In this example, the
total potential loss is approximately $2,000 which equals the amount required to
put the trade into action. In this case, the loss would not occur until the
underlying asset dropped to a price that is lower than $175. On the other hand,
the amount you stand to gain from the aforementioned trade equates to about
$1,000 which is a 50 percent return on your investment assuming the underlying
asset only increases to $200. The strategy would also result in a $500 profit as
long as the underlying asset doesn’t move past $195.
While the modified variation of the butterfly spread contains a greater degree of
risk than the standard version, it also offers a higher profit to risk ratio. It is most
useful when you believe the underlying asset is likely to remain stable over the
timeframe you have chosen or when you are looking to profit from capital gains
on an underlying asset that is likely to remain in the middle of the road.