Bullish Momentum Stocks, Technical Analysis Scanner

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 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).

Closing price compared to moving average

Tesla held its initial public offering (IPO) back in 2010 at $17 a share. Adjusting for two stock splits, a $10,000 investment four years ago would be worth roughly $107,500 today. In 2023, Meta’s operating income grew by 62% year over year thanks to double-digit revenue growth and impressive margin expansion. The business generated $43 billion in free cash flow last year, giving it plenty of financial flexibility to return capital to shareholders or pursue attractive opportunities as they arise.

Momentum Investing Pros and Cons

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.

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The Relative Strength Index (RSI) is the most commonly used momentum trading indicator. It works by comparing the average number of higher closes in a given period, divided by the average number of lower closes. It then inverts it to create an oscillator of 0 to 100, with overbought and oversold levels at 70% and 30%, respectively. There is no single momentum technical indicator that fits all occasions. That’s why it’s essential to know different indicators and how to use them in different trading strategies.

The Father of Momentum Investing

In individual securities, market momentum for a particular stock can be driven by several factors. Positive momentum can be the result of increasing revenue, earnings, or sales. Positive momentum can also be influenced by a reduction in a company’s debt obligations and an increase in its projected cash flow. Negative market momentum can be caused by news about an industry, new government regulations, or changes in leadership at the company. It can also be due to waning popular interest in a security that became temporarily well-known or exciting. Investors and technical traders can follow several indicators to gauge market momentum.

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• Traders use the MACD to generate buy and sell signals and to confirm trend reversals.
• Or worse, you may notice it’s lagging its competitors – and at risk of falling behind even if it’s still seeing shares move generally higher.
• In order to uncover these stocks poised to trade higher, you need to learn the basics of how to identify a momentum stock.
• The best momentum trades come when news of a shock hits, triggering rapid movement from one price level to another.
• Positive momentum can also be influenced by a reduction in a company’s debt obligations and an increase in its projected cash flow.
• Momentum investing is quite different from many of the strategies typically employed by long-term investors.

A low float momentum scanner identifies stocks with low float and combines this filtered universe of stock with unfolding momentum. It is calculated using the difference between 12 and 26 days Exponential Price Average (EPA). It often gets overlooked for the more popular (and complicated) indicators mentioned above. ADX rises when the price momentum increases, whether the trend is up or down. Since downtrends tend to be the most volatile, quite often the ADX will move up as the price moves down. This makes momentum stock investing very risky, and very much a leap of faith.

Bullish – Momentum Stocks

If two momentum indicators show the same thing, it could give the trader more confidence to take the trade. For example, traders are advised to avoid using a momentum indicator suited for sideways markets when a market is trending. Swing trading requires a different entry and exit approach than day trading.

How to find momentum stocks using a stock screener?

You can specify that your stock scanner screen for stocks where, for example, a 10-period moving average is above the 50-period moving average. Of course, to screen for downtrending stocks, you specify the shorter period moving average as below the longer-term MA. Traders looking for promising momentum trades often aren’t very concerned with the true market value of a stock. Instead, they are focused on the stock’s recent and current price action – more specifically, on gauging whether its price action is indicative of a strong trend.

Types of momentum indicators

You can use technical analysis tools like volume, moving averages, and trend lines to identify momentum stocks for intraday trading. You can also look for stocks with high relative strength and positive momentum indicators. Momentrum indicators are technical analysis tools used to determine the strength or weakness of a stock’s price trend. Common momentum indicators include the relative strength index (RSI) and moving average convergence divergence (MACD). Momentum indicators are technical analysis chart overlays to assist traders in identifying a stock price movement’s strength and direction. They are based on the principle that a trend in motion will continue until something changes.

How to Find the Best Momentum Stocks

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.

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.

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• If the MACD line 1 has a negative value, it means the stock is in a downtrend.
• This momentum strategy uses the Average Directional Index (ADX) along with a 200-period moving average on a daily chart.
• Free stock scanners are great, but they are very limited in what they can offer in terms of customization and functionality.
• It has a gaming platform (Garena), an e-commerce platform (Shopee), and a digital payments platform (SeaMoney).
• 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.
• The business generated $43 billion in free cash flow last year, giving it plenty of financial flexibility to return capital to shareholders or pursue attractive opportunities as they arise.
• Just like any other trading style, there are risks that come with momentum trading.
• Each of these strategies – the pullback strategy and the breakout trading strategy – requires a different level of market analysis and understanding of technical indicators.

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master’s in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology.

• For example, say you buy a stock that grows from $50 to $75 based on an overly positive analyst report.
• The momentum indicator has less smoothing than other momentum-type indicators like RSI so the signal line is more reactive.
• Conversely, the index likely fell on the large downward moves below zero.
• However, the success of momentum trading strategies mostly depends on the trader rather than the strategy.
• Benzinga Pro is another excellent tool that combines stock screening capabilities with news feeds, charting and SEC filings.
• 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.
• That’s why it can help to use other indicators to confirm a momentum signal before placing a trade.
• We will also show you three different momentum strategies to take your trading skills to the next level.

How Do Technical Indicators Aid In Momentum Trading?

Other indicators can be used along with RSI to strengthen this conclusion. To reach the best evaluation, experts generally chart the RSI on a daily time frame rather than hourly. However, sometimes shorter hourly periods are charted to indicate whether it is a good idea to make a short-term asset purchase. For trending analysis, momentum is a useful indicator of strength or weakness in the issue’s price. History has shown that momentum is far more useful during rising markets than falling markets because markets rise more often than they fall. Moreover, momentum traders interpret a certain MACD condition as an indicator of a strong market trend.

They can take the volatility factor in their stride and use it to their advantage by maximising their returns on investment through momentum trading. This is because they help in spotting emerging trends by smoothing out price fluctuations over a specified period. 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. Still, the most common ones include the Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), and Stochastic Oscillator.

Understanding Momentum

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.

MACD line 1 – Trend Indicator

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.

Selecting the Right Security for Momentum Trading

• Using indicators of this type, traders can identify leading momentum trading signals.
• An RSI rating of 70 or higher indicates the stock is overbought, while 30 and below means it’s oversold.
• This strategy requires good timing and an understanding of market momentum.
• In this article, we’ll look at momentum investing and its benefits and pitfalls.
• Market sentiment, which is often influenced by crowd psychology, influences market momentum.
• It can also be due to waning popular interest in a security that became temporarily well-known or exciting.

Most of these indicators allow you to add your own custom screening criteria if you wish. A momentum stock is any stock that is facing a steady price change (up or down), i.e. the stock is in the middle of a strong bullish or bearish trend. The primary goal behind momentum trading is to buy when the momentum is strong and sell when it starts to fade. Hence, it is important to note that momentum always comes to an end eventually.

Similarly, if the RSI crosses above its centerline, it may signify a bullish trend, while a crossover below its centerline may signify a bearish trend. To identify overbought and oversold conditions, traders often use the relative strength index (RSI) or the stochastic oscillator. These indicators range from 0 to 100, with readings above 70 indicating overbought conditions and below 30 indicating oversold conditions. The moving average is an average of a security’s price over a specified period of time.

Norwegian Cruise shares rallied nearly 11% Wednesday, now significantly extended from a 20.65 buy point for a double-bottom base. NCLH has been mired in consolidation for 15 months, but the stock jumped 15% this year. One analysts revised their earnings estimate upwards in the last 60 days for fiscal 2024. The direction of a stock’s earnings estimate revisions should always be a key factor when choosing which stocks to buy, since the Scores were created to work together with the Zacks Rank. With more than 800 top-rated stocks to choose from, it can certainly feel overwhelming to pick the ones that are right for you and your investing journey.

The key to momentum investing is being able to capitalize on volatile market trends. Momentum investors look for stocks to invest in that are on their way up and then sell them before the prices start to go back down. For such investors, Stock Momentum being ahead of the pack is a way to maximize return on investment. It’s crucial to understand, however, that the RSI’s indication of overbought or oversold conditions does not inherently mean an imminent trend reversal.

Yes, momentum indicators can help traders identify potential trends, but they are not usually more than 60% accurate, according to our indicator research. As such, traders should always use caution when using momentum indicators and should factor in other indicators and market conditions to help them make the best decisions. Momentum indicators can also generate false signals, especially during market volatility. Traders should be cautious when relying solely on momentum indicators for their trading decisions. When making trading decisions, it is important to consider other factors, such as market trends, news events, and economic indicators.

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.

Strong growth, improving profitability, and an expanding market opportunity are just a few examples of factors to consider. Though « momentum » can refer to fundamental measures of performance, such as revenue and earnings, it is most commonly used in reference to historical asset prices as a technical indicator. This momentum can continue in an upward or downward trend, and it is measured by technical indicators. Market sentiment is the overall attitude of investors toward a security. Market sentiment, which is often influenced by crowd psychology, influences market momentum.

Tampa’s usually busy commercial port was closed as of Wednesday morning. The cruise giant expects net yields to increase about 10.4% compared to last year, up from its June guidance of 10.25% growth. Carnival Cruise sees adjusted earnings before interest, taxes, depreciation and amortization increasing around 40% to about $6 billion, increasing from its Q2 guidance for $5.83 billion.

If the trend line is down, the trend is down and the momentum investor sells the stock. They attempt to achieve alpha returns by investing in stocks that trend one way or another. Some are hotter than others (as measured by growth over a period of time).

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.

These automated investment services use algorithms to create and manage portfolios, with some allowing users to tilt their allocations using momentum strategies. Fortunately, several alternatives allow retail investors the ability to gain exposure to momentum strategies without the need for intensive personal management. Because they are dealing with stocks that will crest and go down again, they need to jump in early and get out fast. This means watching all the updates to see if there is any negative news that will spook investors. Early positions offer the greatest reward with the least risk, while aging trends should be avoided at all costs. The opposite happens in real-world scenarios because most traders don’t see the opportunity until late in the cycle and then fail to act until everyone else jumps in.

We’ll also provide information on some of the best momentum scanners available, along with examining the relative advantages and disadvantages of momentum trading. Additionally, we will introduce various free stock screener tools that can help traders filter stocks based on specific parameters without any cost. Momentum stocks indicate a high potential for profits over a short period of time. Momentum investors can leverage the shifts in the stock prices that arise due to emotional investors instead of giving in to emotional responses to a stock price.

The second month sees it drop further to $40, followed by a decrease to $35 in the third month. By the end of the fourth month, the price falls to $30, then to $25 in the fifth month, and finally down to $20 in the sixth month. So, the investment in Stock B decreases from $10,000 to $4,000, resulting in a 60% loss. Watch for the « flavor of the day » when new products, divisions, or concepts capture the public’s imagination, forcing analysts to throw away calculations and recompute profit estimates. Biotechs and small to midsize technology companies create a generous supply of these story stocks. In this article, we’ll look at momentum investing and its benefits and pitfalls.

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.