6 Best Momentum Scanner Tools & Indicators

One of traders’ biggest mistakes when using momentum indicators is ignoring the market context. The market context includes overall market trends, news, and economic data. If you’re using momentum indicators in a vacuum, you will likely miss important market contexts that could impact your trades. To identify centerline crossovers, traders often use the moving average convergence divergence (MACD) or the relative strength index (RSI). If the MACD crosses above its centerline, it may signify a bullish trend.

What Is Market Sentiment?

• Then, take a closer look at each stock to figure out why they have performed so well, and whether there’s still upside potential if the company continues to execute on its strategy.
• This is because they help in spotting emerging trends by smoothing out price fluctuations over a specified period.
• For example, say you buy a stock that grows from $50 to $75 based on an overly positive analyst report.
• So, this strategy involves entering trades after a price retracement in the direction of the primary trend.
• Some companies are trading at low levels for good reason and are likely to see further declines.
• The use of ADX helps in distinguishing between strong and weak trends, allowing traders to make more informed decisions about entry and exit points​​.
• 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.

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. 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. Momentum trading is designed to capitalize on trading opportunities presented by stocks that are strongly trending.

Potential for High Profits Over a Short Period

Conversely, the index likely fell on the large downward moves below zero. The tax implications and the potential for commissions and other fees mean that buying high and selling higher does not come without its fair share of challenges. 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.

What is Momentum in Trading?

Surprisingly, these traders often have a losing-win-rate ratio, because they know how to catch this one big trade while losing most of the trades. The MACD uses the difference between the slower and faster EMAs to determine the market speed. Examples of these momentum indicators include the Relative Strength Index (RSI) and the Rate of Change (ROC). Finding the best momentum stocks to now isn’t always about fundamental analysis. There are a lot of high-flying stocks that don’t have particularly great numbers right now.

More news from Zacks

The cruise line’s revenue growth has slowed over the last seven quarters after rebounding following the coronavirus pandemic. Revenue increased 15% to a record $7.89 billion, topping views for $7.82 billion. «While this would be a bold target at first blush, we do not believe that the building blocks are overly optimistic,» Citi wrote. Citi hiked its price target on Royal Caribbean stock to $253 from $204 and kept a buy rating on the shares.

Momentum Investing Example

With a solid Zacks Rank and top-tier Momentum and VGM Style Scores, AKAM should be on investors’ short list. Momentum investors should take note of this Computer and Technology stock. AKAM has a Momentum Style Score of B, and shares are up 0.7% over the past four weeks.

• For example, short-term traders often define a stock’s momentum as its price change over the past 10 days.
• He quickly gained a reputation for his unconventional approach to investing, which flew in the face of traditional value investing principles popularized by Benjamin Graham and Warren Buffett.
• Momentum-based investments tend to be bought and sold within short periods.
• The following month, it climbs to $75; by the end of the third month, it reaches $85.
• For trending analysis, momentum is a useful indicator of strength or weakness in the issue’s price.
• These indicators range from 0 to 100, with readings above 70 indicating overbought conditions and below 30 indicating oversold conditions.
• Robinhood is best known for its innovative no-fee brokerage approach, which can be credited with ultimately causing the entire online brokerage industry to drop commissions on stock trades.

What are the benefits of momentum investing?

When the Green KST Line is above the Signal Line, it is a signal to buy, indicating a bullish trend. Conversely, when the Green KST Line falls below the Signal Line, it is a signal to sell, suggesting a bearish trend. 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. We explain and test four popular momentum indicators for reliability and to deduce the best settings for traders. Momentum investing can be a great way to identify opportunities, but like any other investment strategy, it isn’t perfect.

Top Momentum Trading Tips

In technical analysis, momentum is often measured via an oscillator and is used to help identify trends. Momentum trading is an investment strategy that looks for short-term uptrends in securities. Traders buy when prices are rising and sell them when they begin to lose momentum but haven’t yet returned to their original level. For momentum investors, the most profitable part of the ride is when prices are moving at a high velocity.

How we use your personal data

A nine-day EMA of the MACD called the “signal line,” is then plotted on top of the MACD. Traders use the MACD to generate buy and sell signals and to confirm trend reversals. It’s important to note that momentum indicators are not foolproof and should be used with other technical and fundamental analysis tools. They can also be subject to false signals, especially in choppy or volatile markets.

What is the squeeze momentum indicator?

Viking Holdings (VIK) jumped 2.6% Wednesday to clear a 37.25 buy point for an 11-week consolidation. Carnival Cruise stock vaulted 7% Wednesday to 20.20, clearing a 19.09 buy point for a cup-with-handle base. Royal Caribbean on Tuesday announced it changed itineraries for eight ships to avoid the storm.

Top 3 Momentum Trading Strategies – A Complete Guide

• This overextended state is often identified by a series of vertical bars on the 60-minute chart.
• However, sometimes shorter hourly periods are charted to indicate whether it is a good idea to make a short-term asset purchase.
• Momentum trading is a strategy that seeks to capitalize on momentum to enter a trend as it is picking up steam.
• Still ranked as a category 5 storm, meteorologists expect it will inflict significant damage in the Tampa area after it makes landfall.
• Stocks that are prone to upside momentum are often equally prone to big moves to the downside when sentiment changes.
• The primary goal behind momentum trading is to buy when the momentum is strong and sell when it starts to fade.
• Your selection of momentum indicator should depend on your trading strategy and investment goals.
• They can take the volatility factor in their stride and use it to their advantage by maximising their returns on investment through momentum trading.
• He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses.

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. Finding the best momentum stocks can sometimes pay off for nimble investors. Momentum bucks traditional investing principles, yet research supports its merit. 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.

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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. For example, say you buy a stock that grows from $50 to $75 based on an overly positive analyst report. You then sell at a profit of 50% before the stock price corrects itself. You’ve made a 50% return over the course of a few weeks or months (not an annualized return). Over time, the profit potential increase using momentum investing can be staggeringly large.

• Momentum indicators use mathematical calculations to measure the rate of change of a stock’s price over time.
• It is calculated using the difference between 12 and 26 days Exponential Price Average (EPA).
• Gordon Scott has been an active investor and technical analyst or 20+ years.
• 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.
• In fixed-income securities, falling interest rates can be a catalyst for price momentum.

Momentum stocks can be a good investment

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 Stock 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.

Using a combination of top momentum indicators could clarify the signal given by one indicator. If two momentum indicators show the same thing, it could give the trader more confidence to take the trade. 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. 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.

• Negative market momentum can be caused by news about an industry, new government regulations, or changes in leadership at the company.
• 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.
• 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.
• Either outcome equates to «big earnings upside and multiple expansion,» opportunities Citi wrote.
• Meanwhile, Hurricane Milton moved toward Florida’s west coast on Wednesday.
• 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 trading is a strategy that seeks to capitalize on the momentum to enter a trend as it is picking up steam.
• 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.
• Momentum indicators help traders understand the strength of a price trend – they measure the rate of the rise or a fall in stock prices.

Top five momentum indicators in technical analysis

Among the most popular include the relative strength indicator (RSI), price rate of change (ROC), stochastics, and moving average convergence divergence (MACD). 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.

The Free Momentum Trading Strategies PDF

A few momentum investors prefer to use even longer-term MAs for signaling purposes. Using a free version of a stock screener can be beneficial for new traders to test the tools and understand their functionality before committing to a paid plan. Many traders consider the MACD indicator to be one of the most reliable momentum indicators. Especially at times when its movement diverges from the movement of price (moves in the opposite direction).

How can you identify momentum stocks for intraday trading?

Southeast Asia-based Sea Limited (SE -0.42%) pulled a lot of growth forward during the COVID-19 pandemic. Business then slowed considerably, causing the stock to retreat from its all-time highs before it found momentum again, with a 46% gain barely four months into 2024. Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. Rather than «buy low, sell high,» momentum trading follows a strategy of «buy high, sell higher.» 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.