Momentum Stocks: How To Find Momentum Stocks Using a Stock Screener

This equation can lead to the drawing of a trendline with varying periods used in the calculation. Gordon Scott has been an active investor and technical analyst or 20+ years.

What Is Market Momentum?

Some companies are trading at low levels for good reason and are likely to see further declines. In a similar respect, some high-flying momentum stocks are pricey for good reason and are likely to be in store for continued and sustained gains. A high momentum leader is in a hot sector and is Stock Momentum trading higher on volume. Ultimately it’s a stock that consistently outperforms broader indexes such as the S&P 500, Nasdaq, and Dow-Jones. Other momentum indicators useful for reversal trading include the Stochastic Oscillator, ADX, the Williams %R, and the Commodity Channel Index (CCI).

Do You Need Help Finding Momentum Stocks?

That histogram then has a simple moving average calculated on top of it, called the ‘signal line’. The core of both day and swing trading is to search for momentum in stock price movement. The more you focus your research on this strategy, the better your chances of consistently earning money in the market.

Top Indicators and Tools for Momentum Trading Strategies

There are various volatility based indicators available in most stock trading tools and brokerage platforms. From the chart above, we can see that the price is forming a higher high. We can then patiently wait for a bullish hidden divergence before entering a BUY trade.

RSI Exponential 14D

Highs and lows are indicated by wicks that extend from the tops and bottoms of candlesticks. Liberated Stock Trader, founded in 2009, is committed to providing unbiased investing education through high-quality courses and books. We perform original research and testing on charts, indicators, patterns, strategies, and tools.

IBD Stock Of The Day

Kinsale had delivered a 36% gain year to date as of mid-April, but its momentum has essentially been going strong since its 2016 initial public offering (IPO). In all, it has delivered a 2,460% total return (more than 50% annualized) due to its incredible profitability and strong growth. In fact, in its worst year since going public, Kinsale still managed a 10% gain for investors. It wasn’t too long ago that investors started to lose faith in Robinhood (HOOD 0.17%) after trust issues with the platform developed among retail investors during the meme stock frenzy. However, the company has done an excellent job of moving forward, and investors were the beneficiaries of a 32% gain through mid-April 2024.

The Free Momentum Trading Strategies PDF

• If you aren’t familiar with its business, Kinsale is an insurance company.
• Using momentum indicators to trade is about preference, strategy and the trading environment.
• One of traders’ biggest mistakes when using momentum indicators is ignoring the market context.
• If it can continue to grow its e-commerce and financial services businesses, the stock’s momentum could last for a long time.
• In the stock market, momentum trading looks to profit from investing in “hot” stocks – expecting them to stay hot – and dumping “cold” stocks, expecting them to stay cold.

By using this technique, you should know that you are trading on the backs of other people in the market, and price trends are never guaranteed. And always be prepared for unexpected reversals or corrections that take place. This can happen because of unexpected news or changes in investor sentiment in the market. Market momentum can be used as a measure of overall market sentiment that can support buying and selling with and against market trends.

Reversal Trading

The 5-minute momentum trading strategy is a popular method among day traders, focusing on short-term movements in highly liquid assets. This scalping trading strategy involves using a 5-minute chart to identify strong momentum in a stock or asset, followed by entering trades in the direction of the momentum. Traders typically use technical indicators like moving averages or RSI to confirm the momentum and set tight stop-losses to manage risk. Investors should be aware that there is no single definition of momentum investing.

• One way to measure momentum in the stock market is by looking at Relative Strength (RS), which relates to how well a stock performs compared with the broader index.
• However, interpreting these indicators can be challenging for beginners.
• If you’re looking for stocks that can thrive in the new bull market, this list represents a good starting point.
• The RSI is a popular momentum oscillator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the stock market.
• Like a boat trying to sail on the crests of waves, a momentum investor is always at risk of timing a buy incorrectly and ending up sunk.
• The MACD indicator compares a longer exponential moving average (EMA) with a shorter-term EMA to produce the MACD line, followed by a histogram and a signal line.

Top five momentum indicators to trade with

Momentum traders are typically short-term traders – either day traders looking for intraday profits or short to medium term swing traders. Different stock screeners are tailored to accommodate various trading styles, making it crucial to choose the right screener based on a trader’s specific approach. Rather than identifying overbought and oversold zones, many traders use the RSI to identify divergences. This is where as the price continues to trend, the momentum indicator points the other way.

What is the 5-minute momentum trading strategy?

They are lagging indicators that compare the current price to averages over a previous period. Traders can observe if the price moves faster or slower relative to its average behaviour in the past. An example of such a momentum indicator is the Moving Average Convergence Divergence (MACD).

Ignoring Market Context

• Additionally, identifying pullbacks and breakouts is another key element in becoming a momentum trader.
• Momentum indicators can also generate false signals, especially during market volatility.
• In this case, the 50-day crossing above the 200-day creates a buy signal, while a 50-day crossing back below the 200-day creates a sell signal.
• The stochastic oscillator is a momentum indicator that compares a stock’s closing price to its price range over a specified period.
• Traders should know the market conditions and adjust their trading strategies accordingly.
• This means watching all the updates to see if there is any negative news that will spook investors.

Conversely, when a stock is oversold, the price has fallen too far, too fast, and is due for a rebound. Ultimately, RSI is a tool to determine low-probability and high-reward setups. Simply put, the RSI forecasts sooner than almost anything else an upcoming reversal of a trend, either up or down. Welles Wilder Jr. in the late 1970s; his “New Concepts in Trading Systems” (1978) is now an investment-lit classic. Once these numbers are charted, they can be compared to thresholds to see if the stock is oversold or overbought.

Stock Market Momentum & Daily Stock Activity

For example, some equity traders closely watch the Treasury yield curve and use it as a momentum signal for equity entries and exits. A 10-year Treasury yield above the two-year yield generally is a buy signal, whereas a two-year yield trading above the 10-year yield is a sell signal. Notably, the two-year versus 10-year Treasury yields tend to be a strong predictor of recessions, and also has implications for stock markets. A stock scanner – also known as a stock screener – is a software tool that enables traders to identify stocks that meet a trader’s specified criteria quickly. One of the leading fundamental stock screeners is Stock Rover, which offers robust research tools and an extensive database for evaluating stocks.

They also demand a disciplined approach to risk management and an ability to interpret market signals accurately. It’s important to practice and become comfortable with the methods in a simulated trading environment before applying them in real trading scenarios. It’s not a secret that knowing how to ride the momentum in trading is a key part of being a successful trader. The key to identifying momentum stocks is avoiding high-risk stocks and focusing more on high-performance stocks. Swing traders can find high-quality stocks by scanning for momentum stocks and trading the best positions.

Even though low-cost brokers are slowly putting an end to the problem of high fees, this is still a major concern for most rookie momentum traders. Like a boat trying to sail on the crests of waves, a momentum investor is always at risk of timing a buy incorrectly and ending up sunk. Most momentum investors accept this risk as the price for the possibility of higher returns.

Momentum Investment: Meaning, Formula, Controversy

A veteran journalist with extensive capital markets experience, Jeff has written about Wall Street and investing since 2008. His work has appeared in numerous respected finance outlets, including CNBC, the Fox Business Network, the Wall Street Journal digital network, USA Today and CNN Money. Stocks that are prone to upside momentum are often equally prone to big moves to the downside when sentiment changes. That means if you buy at the wrong time or in the wrong stock, you could see a dramatic loss rather than the big profit you had hoped for. The information contained on this website is solely for educational purposes, and does not constitute investment advice. You must review and agree to our Disclaimers and Terms and Conditions before using this site.

Overreliance on Indicators

• Rather than identifying overbought and oversold zones, many traders use the RSI to identify divergences.
• The Simpler Scanner has many features that can cater to your strategy and assist you in analyzing the market.
• Mostly, traders utilize this tool for corroborating price movements rather than for direct trading signals.
• Year to date, Meta Platforms has been one of the best-performing mega-cap stocks, gaining 35% in less than four months.
• The MACD uses the difference between the slower and faster EMAs to determine the market speed.

Thousands of stocks are listed in the market, with good momentum that traders can profit from; traders will need to calculate the strength behind a big move. Momentum indicators are most effective in trending markets and may not be as useful in range-bound markets. Traders should know the market conditions and adjust their trading strategies accordingly.

In short, momentum trading strategies help you to recognize and follow the trend. So, in this article, we will cover everything you need to get started trading these strategies. We will also show you three different momentum strategies to take your trading skills to the next level. On the chart below, two kinds of signals can be observed with the momentum indicator divergences (blue lines) and overbought and oversold signals (red circles).

The same risk-return trade-off that exists with other investing strategies also plays a hand in momentum investing. Momentum investing can turn into large profits for the trader who has the right personality, can handle the risks involved, and can dedicate themselves to sticking to the strategy. Tighten up stops or consider a blind exit when technical barriers are hit like a major trendline or previous high/low. Exit or take partial profits when crossovers signal potential trend changes. The firm upgraded Norwegian Cruise Line to buy from neutral and raised its price target to 30, up from 20, citing its recent strategy shift.

• Momentum indicators are technical analysis chart overlays to assist traders in identifying a stock price movement’s strength and direction.
• Positive histogram values indicate a bullish trend (and, just as with the ADX, higher numbers indicate a stronger trend); negative (below zero) values indicate a bearish trend.
• A stock that surges in volume on good news is often a good candidate for trading momentum.
• Momentum investing can turn into large profits for the trader who has the right personality, can handle the risks involved, and can dedicate themselves to sticking to the strategy.
• Momentum investing can also be a popular strategy among professional investors such as hedge funds.
• Benzinga Pro is another excellent tool that combines stock screening capabilities with news feeds, charting and SEC filings.

Free stock scanners are great, but they are very limited in what they can offer in terms of customization and functionality. If you are looking for an advanced stock screener to propel your research in the stock universe. The Simpler Scanner has many features that can cater to your strategy and assist you in analyzing the market.

As its name suggests, when the lines converge, the price tends to continue in the direction of the trend. The CCI value suggests that the S&P 500 has left the oversold zone and may have turned into a ranging or bullish market. Note that the S&P 500 charts below are used for educational purposes only and do not reflect the current market price of the index.

The stop-loss is placed just below the recent price swing, and the profit target is set at a key level that offers at least twice the risk. The MACD uses the difference between the slower and faster EMAs to determine the market speed. Momentum indicators are meant to help traders spot whether the market trend will continue or reverse. Beyond that challenge of identifying stocks with a difficult-to-define “it” factor, it is also important to understand that momentum cuts both ways.

Finding the best momentum stocks can sometimes pay off for nimble investors. Momentum indicators can help identify potential reversals, as they can give you insight into whether the market is overbought or oversold. For example, if the RSI is above 70, it’s a sign that the market may be overbought and due for a pullback.

For value investors, it’s all about finding good stocks at good prices, and discovering which companies are trading under their true value before the broader market catches on. The Value Style Score utilizes ratios like P/E, PEG, Price/Sales, Price/Cash Flow, and a host of other multiples to help pick out the most attractive and discounted stocks. The high of day momentum scanner identifies stocks trading at the high of the day with high relative volume.

Plus, the business has been (successfully) leveraging AI technology to improve engagement and content personalization. Without looking at the price of the S&P and only using momentum, we can see that it’s likely the S&P index rallied in tandem with the spikes above zero on the momentum indicator below. Conversely, the index likely fell on the large downward moves below zero.

• Momentum trading is more reactive to recent price movements, while trend following emphasizes broader, more sustained directions in the market.
• Plus, bull markets can be a great opportunity to take advantage of strong momentum in excellent, well-run businesses.
• So, if you feel you have the skill of identifying momentums in trading, then go ahead and try it.
• Momentum is the speed or velocity of price changes in a stock, security, or tradable instrument.
• This strategy often works best in a trending market where the RSI divergence can signal a potential continuation of the current trend​​.
• It involves holding overnight positions, so closing prices and next-day opening prices impact.
• Rather, they are speculative bets on what they will become in the future.

MSCI and FTSE Russell are two companies that have introduced momentum indexes. Positive momentum can indicate a potential bullish trend while negative momentum can indicate a bearish trend. Broadly, momentum can be measured across both asset classes and individual securities, with market momentum, in particular, referring to the overall market. Momentum investing works best in a bull market because investors tend to herd a lot more. In a bear market, the margin for profit on momentum investing shrinks in accordance with increased investor caution.

Here are some frequently asked questions about the momentum trading strategies. It’s crucial to confirm the divergence pattern and not rely solely on the RSI. This strategy often works best in a trending market where the RSI divergence can signal a potential continuation of the current trend​​. Note that this article does not constitute financial or investment advice. Always conduct your own due diligence before trading, considering your attitude to risk, experience in the market, and portfolio margin.

Carnival stock broke out as cruise lines rallied on strong momentum, with most set to report Q3 earnings this month. Although he wasn’t the first to use the strategy, fund manager and businessman Richard Driehaus is often credited as being the father of momentum investing. Investors can count on the Zacks Rank’s success, with #1 (Strong Buy) stocks producing an unmatched +25.41% average annual return since 1988, more than double the S&P 500’s performance. But the model rates a large number of stocks, and there are over 200 companies with a Strong Buy rank, plus another 600 with a #2 (Buy) rank, on any given day. Traders can search for stocks with bullish momentum by specifying that a scanner looks for stocks with a MACD histogram value greater than zero or where the MACD line is above the signal line. Conversely, bearish momentum is reflected by the MACD line crossing to below the signal line and/or by a negative histogram number (below zero).

The idea of selling losers and buying winners is seductive, but it flies in the face of the tried-and-true Wall Street adage, “buy low, sell high.” Growth investors, on the other hand, are more concerned with a company’s financial strength and health, and its future outlook. The Growth Style Score examines things like projected and historic earnings, sales, and cash flow to find stocks that will experience sustainable growth over time. Trading based on trend strength, rather than just on trend direction, increases your chances of being able to maximize potential trend trading profits. Momentum scanners can help you get into a new trend near the beginning and also warn you to take profits and get out before a market reversal occurs. You can also screen for stocks where the stock price is a certain percentage greater than a major moving average (e.g., price 10%, or more, higher than the 50-period moving average).

Below is our take on some of the most popular momentum indicators available on the Capital.com platform, and how one could incorporate them into their trading strategy. U.S. Government Required Disclaimer – Commodity Futures Trading Commission. Futures and options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. This website is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this website.