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

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).

Top five momentum indicators in technical analysis

At this point, you may be tempted to think that momentum trading strategies are merely another technical analysis method, but nothing can be further from the truth. Instead, it’s about focusing on the main body of the price movement and leveraging market psychology and herd mentality, which drive prices in a certain direction. Not everyone can be momentum traders, but those who succeed in doing so get a very useful tool to make profits in the markets.

Free Momentum Indicators

An asset falling in price may find support at the 50 value and bounce off this level again to continue an upward rise in price action. Suppose you invest for six months, and you have $10,000 to invest in each stock. The following month, it climbs to $75; by the end of the third month, it reaches $85. The upward trend continues, with the price increasing to $90 in the fourth month, $95 in the fifth month, and finally hitting $100 in the sixth month. As a result, the investment in Stock A grows from $10,000 to $20,000, reflecting a remarkable 100% increase. Some robo-advisor platforms now offer portfolio options that incorporate momentum strategies.

How do you use a momentum indicator?

• From the chart above, we can see that the price is forming a higher high.
• Just as some stocks seem to go up illogically just because investors like them, other stocks can crash and burn when Wall Street gives up on them.
• When making trading decisions, it is important to consider other factors, such as market trends, news events, and economic indicators.
• The firm estimates that Norwegian could achieve 23% annual earnings growth over the next three years.
• Some traders use them to time their entry and exit points, while others use them as a confirmation tool to validate other indicators or chart patterns.

Conversely, if the RSI is below 30, it’s a sign that the market may be oversold and due for a bounce. Reversal trading is a strategy that involves identifying potential turning points in the market and entering trades in the opposite direction of the prevailing trend. This approach can be more challenging, requiring you to accurately predict when a trend is about to reverse. The KST is a composite indicator that combines four different time frames to provide a clearer picture of price momentum and identify buy and sell signals. In the stock market, momentum refers to the strength and direction of a stock’s price movement.

Best Technical Momentum Indicators

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 Stock Momentum 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.

How can you identify momentum stocks for intraday trading?

Avoiding these common mistakes can help you use momentum indicators effectively in your trading strategy. Trend following is a popular approach that involves identifying the direction of the market trend and then entering trades in the same direction. Momentum indicators can be particularly helpful in identifying trends and determining whether they are strong or weak. While there’s no way to time the market or know what stocks will gain momentum at any given time, there are some interesting opportunities for patient momentum stock investors. Keep reading to see five momentum stocks that have already delivered strong results for investors and could continue to outperform. Traders buy when prices are starting to rise and sell when they seem to have peaked and momentum has begun to reverse.

Factors to consider before searching for momentum stocks

• 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.
• The ADX is the average of the -DI and +DI, which are calculated from the comparison of two consecutive ‘lows’ and the respective ‘highs’, using the average true range (ATR).
• Momentum indicators are powerful tools that help traders identify the strength and direction of a trend.
• Aside from trading when the price reaches the ranges between +/-100, traders use the CCI to identify extremely overbought and oversold zones with boundaries at +/-200.
• It takes discipline to trade this way because the trade must be closed at the first sign of weakness, and the funds must be immediately placed into a different asset showing strength.
• In technical analysis, momentum indicators help traders identify the strength and direction of a stock’s price.
• 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.

It involves holding overnight positions, so closing prices and next-day opening prices impact. If the surge doesn’t happen but remains within your risk management threshold, you can look for another opportunity to buy or sell the next day. Candlestick charts are the best to analyze setups for both day traders and swing traders. A green or white candlestick means the close was higher than the previous close for a particular session, whereas a red or black candlestick indicates a lower finish from the last close.

Trading Strategies with Momentum Scanners

Since momentum can be quite powerful and indicate a strong trend, investors need to recognize when they’re investing with or against the momentum of a stock or the overall market. Seek out securities that trade more than 5 million shares per day whenever possible. Some low float issues can turn into highly liquid instruments when news happens, and volatility spikes as intense emotional reactions draw in market players from diverse sources.

How to Find Intraday Momentum Picks

Generally, CCI is used to find indications of a new trend when ranges break. The ADX is the average of the -DI and +DI, which are calculated from the comparison of two consecutive ‘lows’ and the respective ‘highs’, using the average true range (ATR). The MSCI momentum indexes are part of the company’s factor index series. Momentum indexes include the MSCI USA Momentum Index and the MSCI World Index.

What is the 5-minute momentum trading strategy?

Citi hiked its price target on Royal Caribbean stock to $253 from $204 and kept a buy rating on the shares. The firm lifted its price target on Carnival Cruise stock to 28 from 25 and kept a buy rating on the shares. The company’s portfolio offering evolved from a single Facebook app to multiple apps like photo and video sharing app Instagram and WhatsApp messaging app owing to acquisitions. Along with in-house developed Messenger, these apps now form Meta’s family of products used by almost 3.24 billion people on a daily basis as of Mar 31, 2024. Thus, the more stocks you own with a #1 or #2 Rank and Scores of A or B, the better. Trade Ideas also comes with charting, backtesting, automated trading and more.

ADX Rating – Trend Strength

• Meanwhile, Hurricane Milton moved toward Florida’s west coast on Wednesday.
• These momentum indicators can be used differently depending on the trader’s strategy and risk tolerance.
• Above all, applying proper risk management is a vital part of momentum trading.
• The key to identifying momentum stocks is avoiding high-risk stocks and focusing more on high-performance stocks.
• To understand momentum indicators, you first need to understand momentum.
• Momentum indicators are meant to help traders spot whether the market trend will continue or reverse.
• Broadly, momentum can be measured across both asset classes and individual securities, with market momentum, in particular, referring to the overall market.

It scans the market in real-time and finds stocks breaking out of their ranges or showing strong momentum. Perfect for day traders and active investors who want to stay ahead of the trend and make money. With a momentum scanner you can filter through thousands of stocks in seconds and find the ones that match your criteria, saving you time and improving your strategy. While both strategies involve capitalizing on market trends, momentum trading specifically targets securities with strong recent performance, often over shorter time frames. Meanwhile, trend following generally involves a longer-term approach, where traders seek to ride entire trends, regardless of short-term fluctuations.

What Is the Market Psychology Behind Momentum Trading?

A proprietary stock-rating model, the Zacks Rank utilizes the power of earnings estimate revisions, or changes to a company’s earnings outlook, to help investors create a successful portfolio. 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. It is calculated as the difference between the MACD indicator and the signal line.

Momentum is the speed or velocity of price changes in a stock, security, or tradable instrument. Momentum shows the rate of change in price movement over a period of time to help investors determine the strength of a trend. Stocks that tend to move with the strength of momentum are called momentum stocks. For investors who want a more hands-on approach without full-time commitment, many financial and brokerage platforms offer momentum screening tools.

Instead of the traditional philosophy of trading—buy low, sell high—momentum investing seeks to sell low and buy lower, or buy high and sell higher. Instead of identifying the continuation or reversal pattern, momentum investors focus on the trend created by the most recent price break. Yes, momentum trading strategies have proven to be effective in various market conditions, especially in markets that exhibit strong trends.

Momentum indicator trading strategies

Kinsale is the only publicly traded pure play on specialty insurance and has lots of room to grow. This is a highly fragmented industry, and Kinsale makes up a little more than 1% of the market today. Meta’s social media platforms have almost 4 billion monthly active users worldwide and have a massive presence in the digital advertising industry, where the company makes most of its money. It has a dominant 75% share of social network ad spending and roughly one-fifth of all digital ad spending in the United States.

Understanding Market Momentum

To add strength to the crossover signals, traders will use both the EMAs and the histogram. In addition, traders use price crossing over the zero line for bullish or bearish signals. The generally understood trigger for trades using the MACD is when the signal line crosses the histogram (crossover). This can be interpreted as a change in the market’s momentum, which could lead to a change in the price trend. There’s an old saying about investing that the best way to make money is to buy low and sell high.

• Traders buy when prices are starting to rise and sell when they seem to have peaked and momentum has begun to reverse.
• When the shorter-term average is above the longer-term average, it’s a bullish signal, indicating the trend is up.
• For example, many traditional liability insurers wouldn’t provide coverage for a demolition business; Kinsale would.
• There are a lot of high-flying stocks that don’t have particularly great numbers right now.
• Another batch of momentum capital enters as the trade evolves, generating counter swings that shake out weak hands.
• While not directly indicative of momentum, moving averages are instrumental in helping traders determine if a market is confined within a range or exhibiting a clear trend.
• Momentum is used by investors to trade stocks in an uptrend by going long (or buying shares) and going short (or selling shares) in a downtrend.
• U.S. Government Required Disclaimer – Commodity Futures Trading Commission.

Top 3 Momentum Trading Strategies

It often requires frequent trading, sophisticated analysis, and the ability to closely monitor market trends—tasks that can be time-consuming and potentially costly for the average investor. A Relative Strength Indicator (RSI) is a momentum indicator that is used to track the price changes in security. RSI – 14D measures the speed and change of price movement over a 14-trading day period to determine whether a stock is in the overbought or oversold range. A simple average of daily price gains and daily price losses is compared with each other to calculate relative strength.

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.

With a solid Zacks Rank and top-tier Momentum and VGM Style Scores, META should be on investors’ short list. Momentum investors should take note of this Computer and Technology stock. META has a Momentum Style Score of B, and shares are up 15.4% over the past four weeks. Automated trading can be helpful to execute trades with higher accuracy and frequency. In terms of value, RSI exponential above 80 indicates that the stock has run up too much, whereas a reading below 20 indicates an oversold position. The higher volumes can suggest that the stock is of continued interest, whereas low volume indicates a lack of interest in the security (lack of momentum).

Traders use RSI to identify potential trend reversals and confirm a trend’s strength. These momentum indicators can be used differently depending on the trader’s strategy and risk tolerance. Some traders use them to time their entry and exit points, while others use them as a confirmation tool to validate other indicators or chart patterns. Generally, they look for stocks that are trading above their moving averages as a sign that they will continue moving higher. Alternatively, short-sellers look to capitalize on a stock that’s on a downward trend.

It helps in making the best use of the oscillations in the price of a stock. You can use all the indicators mentioned above on Tickertape Stock Screener to filter momentum stocks. However, it is essential to keep in mind that entry and exit points are crucial elements of momentum trading/investing. To determine the entry and exit points for a stock and the direction of the trend, several other technical indicators are used, along with the ones mentioned above.

This is a signal of potential continued momentum in the trend’s direction. Momentum traders usually have strong trading instincts to feel where the market is heading and ride the trend. In technical analysis, momentum indicators help traders identify the strength and direction of a stock’s price. This article explains what momentum trading is and how momentum traders utilize stock scanners to implement trading strategies.