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

A low float momentum scanner identifies stocks with low float and combines this filtered universe of stock with unfolding momentum. 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). 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.

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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). 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. Momentum indicators are technical analysis chart overlays to assist traders in identifying a stock price movement’s strength and direction.

Calculating Momentum

• Negative market momentum can be caused by news about an industry, new government regulations, or changes in leadership at the company.
• By signing up as a member you acknowledge that we are not providing financial advice and that you are making the decision on the trades you place in the markets.
• Momentum indicators help traders understand the strength of a price trend – they measure the rate of the rise or a fall in stock prices.
• Many momentum traders use momentum scanners to help them identify trades with the best potential for making a profit by comparing stocks against one another.
• Momentum trading is a strategy that seeks to capitalize on the momentum to enter a trend as it is picking up steam.
• Either outcome equates to “big earnings upside and multiple expansion,” opportunities Citi wrote.

Moreover, momentum traders interpret a certain MACD condition as an indicator of a strong market trend. When the MACD line is above or below the signal line, and the histogram bar shows a strong market trend., traders can interpret that as a signal for a trend continuation. As seen in the chart above, the trend is likely to continue when the blue line crosses above the orange line and the bars are above the zero level of the histogram, and vice versa in a downtrend. Different momentum indicators indicate different things – for example, when the RSI scores above 50, that signifies positive momentum, which can be indicative of an uptrend in the market.

What is the formula for calculating momentum indicators?

The idea of this strategy is simple – Momentum trading capitalizes on the continuation of existing market trends, leveraging the inertia that drives financial markets. This approach is particularly attractive because it doesn’t require pinpoint predictions about market tops and bottoms. Instead, it focuses on catching the wave of market movements, riding the momentum already established by prevailing trends.

Factors to consider before searching for momentum stocks

• Alternatively, short-sellers look to capitalize on a stock that’s on a downward trend.
• Momentum in the stock market refers to the sustained increase or decrease in the price of a stock.
• 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.
• By understanding the fundamentals of the KST oscillator and incorporating it into their trading systems, traders can make more informed decisions and improve their overall trading performance.
• Year to date, Meta Platforms has been one of the best-performing mega-cap stocks, gaining 35% in less than four months.
• Examples of these momentum indicators include the Relative Strength Index (RSI) and the Rate of Change (ROC).
• Momentum is the rate of acceleration of a security’s price—that is, the speed at which the price is changing.
• One of the advantages of momentum trading is that it focuses your investing efforts on stocks showing significant price movement.
• To add strength to the crossover signals, traders will use both the EMAs and the histogram.
• Market momentum refers to the aggregate rate of acceleration for the broader market as a whole.

MACD divergence is a signal of waning momentum and, therefore, of a possible impending trend change. It’s crucial to understand, however, that the RSI’s indication of overbought or oversold conditions does not inherently mean an imminent trend reversal. For instance, the RSI may remain in an overbought zone for an extended period without a corresponding trend reversal. Hence, it’s advisable to use the RSI in conjunction with other technical indicators to gain a more comprehensive view of the market conditions. This approach enhances the accuracy and reliability of trading decisions based on the RSI. The Relative Strength Index (RSI) is a critical tool in momentum trading, acting as an oscillator that fluctuates between zero and 100 on its scale.

What Is Market Sentiment?

So, the investment in Stock B decreases from $10,000 to $4,000, resulting in a 60% loss. In this article, we’ll look at momentum investing and its benefits and pitfalls. For fiscal 2024, nine analysts revised their earnings estimate upwards in the last 60 days, and the Zacks Consensus Estimate has increased $0.16 to $6.43 per share.

Potential for High Profits Over a Short Period

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.

Understanding Market Momentum

• MACD divergence is a signal of waning momentum and, therefore, of a possible impending trend change.
• Traders buy when prices are starting to rise and sell when they seem to have peaked and momentum has begun to reverse.
• By analyzing price and volume data, you can gain insight into a stock’s price movement’s strength or weakness.
• Momentum stocks indicate a high potential for profits over a short period of time.
• There is no single momentum technical indicator that fits all occasions.
• There are several types of momentum indicators, each with its unique formula and interpretation.
• Using momentum indicators to trade is about preference, strategy and the trading environment.
• It measures the speed and change of price movements, helping traders identify overbought or oversold conditions in a trading asset.

However, the company has done an excellent job of moving forward, and investors were the beneficiaries of a 32% gain through mid-April 2024. Market Momentum highlights major market indices and market rates, and also displays a market momentum summary box. It is calculated as the difference between the MACD indicator and the signal line. A positive MACD line 2 value indicated that the MACD line 1 value is greater than the signal line value. There can be different interpretations of this value depending upon the absolute value of the MACD line 1.

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Using these indicators, you can identify trends, time your trades, confirm price movements, and diversify your portfolio. The MACD is a trend-following momentum indicator that uses moving averages to identify changes in stock price trends. It is calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA.

Risks and rewards of momentum stocks

This is a signal of potential continued momentum in the trend’s direction. Mostly, traders utilize this tool for corroborating price movements rather than for direct trading signals. An upward crossing of the zero line by the indicator signifies increasing upward momentum in price, whereas a downward crossing indicates a growing downward momentum.

Benefits of Momentum Investing

For example, if the MACD line 1 has a positive value, it means the stock is in an uptrend. In this case, a positive line 2 value would mean a strong uptrend and a negative line 2 value would mean a weak uptrend. A value above 80 indicates an overbought situation for the stock, whereas a value below 20 indicates an oversold.

What are the top momentum stocks?

Conversely, if the MACD crosses below its centerline, it may signify a bearish trend. 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. 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 indicator, often overlooked due to its simplicity, is another essential tool. It compares the last closing price with a previous one, typically from 14 periods ago (although some traders use 30 periods for smoother signals). The Moving Average Convergence Divergence (MACD) is one of the top momentum indicators for trend continuation. It works by comparing a longer exponential moving average (EMA) to a shorter-term EMA to produce the MACD line. That histogram then has a simple moving average calculated on top of it, called the ‘signal line’.

How to Master the Andrew’s Pitchfork Trading Strategy

• Thus, the more stocks you own with a #1 or #2 Rank and Scores of A or B, the better.
• The relative strength line cleared consolidation highs to its best levels since January.
• If you want a combination of all three Style Scores, then the VGM Score will be your friend.
• One explanation for this pattern is the time-varying systematic risk of the momentum strategy because momentum has significant negative beta following bear markets.
• From the chart above, we can see that the price is forming a higher high.
• They help traders identify overbought (ready to fall) or oversold (ready to rise) conditions, gauge the trend’s strength, and signal potential entry and exit points.

Here are some frequently asked questions about the momentum trading strategies. 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. The momentum indicator has less smoothing than other momentum-type indicators like RSI so the signal line is more reactive.

This can lead bull markets to rise higher than fundamentals might predict. If you intend to practice momentum investing, make sure you choose the proper securities and consider their liquidity and trading volume. 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. High or increasing volume is commonly interpreted as a sign that the existing trend has strong momentum. A volume scan requirement might be something like, “Current trading volume greater than 10-day average trading volume”.

Momentum investors systematically chase profits, hoping to beat the crowd and get out before the reversal. Rather than be controlled by emotional responses to stock prices like many investors are, momentum investors seek to take advantage of the changes in stock prices caused by emotional investors. Stock Momentum That requires discipline and having a specific buying point and selling point. No – Pure long-only equity momentum strategy implicitly can’t be used as a hedge. The long-short equity momentum factor is also a troublesome for hedging as a momentum factor is prone to “momentum crashes”.

Its primary function is to generate buy and sell signals by identifying overbought and oversold conditions in the market. Using momentum indicators to trade is about preference, strategy and the trading environment. The momentum indicators listed above can be used for mean reversions, range bound markets and trends. How you use them for each market type could produce a different return on investment. The squeeze momentum indicator helps traders identify periods of low volatility and predict potential breakouts in a stock’s price movement. Traders can use this indicator to enter or exit trades based on the stock’s momentum and volatility levels.

Equity momentum factor performs well during the first stages of crises (as it usually shorts stocks with strong downward momentum and buys stocks which are not falling fast). Momentum crashes usually occurred right as the market rebounded following previous large declines. One explanation for this pattern is the time-varying systematic risk of the momentum strategy because momentum has significant negative beta following bear markets. Numerous amended versions of the basic momentum strategy appeared after the 2008 bear market. These adjusted strategies may offer a better hedge against equity market risk. Each of these strategies – the pullback strategy and the breakout trading strategy – requires a different level of market analysis and understanding of technical indicators.

Momentum-based investments tend to be bought and sold within short periods. Depending on tax laws, this may cause the capital gains to be taxed more harshly. There may also be higher fees in selling the security before a certain amount of time has passed. 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.

Momentum indicators are powerful tools that help traders identify the strength and direction of a trend. However, interpreting these indicators can be challenging for beginners. In this section, we will explore some key concepts to help you better understand how to interpret momentum indicators. As an individual investor,  momentum trading will most likely lead to overall portfolio losses. When you purchase a rising stock or sell a falling one, you’re likely reacting to older news than the professionals at the head of the momentum investing funds.

Investors can gauge momentum differently by looking at varying timeframes. Momentum can also apply to an index or asset class, not just an individual stock. SeaMoney ended 2023 with $8.5 billion in cash and equivalents on its balance sheet, giving it plenty of financial flexibility to invest in its business as it sees fit. If it can continue to grow its e-commerce and financial services businesses, the stock’s momentum could last for a long time. 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.

Gordon Scott has been an active investor and technical analyst or 20+ years.

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. 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. Plus, the business has been (successfully) leveraging AI technology to improve engagement and content personalization.

Benzinga Pro is another excellent tool that combines stock screening capabilities with news feeds, charting and SEC filings. Explore our Trade Together program for live streams, expert coaching and much more. As its name suggests, when the lines converge, the price tends to continue in the direction of the trend. You may be surprised to learn that what looked like a big winner is actually just part of a broader bull market trend and isn’t all that special. 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. Let’s use iconic electric vehicle company Tesla (TSLA) as a working example.

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. Momentum trading is more reactive to recent price movements, while trend following emphasizes broader, more sustained directions in the market. A momentum scanner is a technical analysis tool that helps traders find stocks that are moving big, up or down. It scans the market in real-time and finds stocks breaking out of their ranges or showing strong momentum.