Momentum stocks usually experience a steady change in their
price. These are the stocks that are usually in the middle of strong bullish or
bearish trend. Investing in momentum stocks can help you generate better
returns. However, it is important that you follow a careful strategy to invest
in the momentum stocks. If you are investing in momentum stocks, you must trade
when the momentum (movement) is strong and then sell it when the fading begins.
Recognizing that momentum is not solely about price
fluctuations but also about the underlying factors that drive these changes,
investors can gain valuable knowledge to navigate the stock market
successfully. Through the implementation of the five practices detailed in this
article, you will learn to identify different ways for identifying momentum
Best Practices to Follow to Identify Momentum Stocks
Investing in momentum stocks will become easy if you have a
disciplined approach. By having a proper strategy, you will be able to work in
the financial market with ease and also generate better returns. It is
advisable that you consider taking up a good momentum investing course that will give you a detailed understanding of how to
identify which momentum stocks to invest in.
Here are some of the key practices through which you can
identify momentum stocks:
1. Relative Volume
The relative volume is the ratio of the average volume of
the stocks in the past 10 days to the average volume in the past 91 days. When
you look into the relative volume, you get an idea about the stock demand in
the past few days.
If the relative volume of the stock is high, it indicates
that it has been in demand in the past few days. However, the stock's momentum
is low if the volume is low.
2. MACD 1 Line Trend Indicator
Before investing in a momentum stock, it is advisable to
check the indicators for past and current movements. Moving average convergence
divergence is one of the indicators you can consider for the same. MACD is the
difference in the Exponential Price Average of the particular stock in the past
12 and 26 days.
With the help of the MACD trend line, you can easily
identify the short-term momentum of the stocks. This further helps you
understand whether the stock is in demand or not. If the 12-day EPA is higher
than the 26-day EPA, it indicates that the stock is moving upwards and that
there is a positive demand, and vice versa.
3. Price Rate of Change (RoC) Oscillator
The Rate of Change (RoC) oscillator is a valuable tool used
to identify momentum stocks in the financial markets. It measures the speed at
which a stock's price is changing over a given period. By calculating the
percentage change in price, the RoC oscillator provides you can gain insights
into a stock's momentum.
The positive RoC values indicate upward momentum, while
negative values suggest downward momentum. RoC is often used to spot potential
buying or selling opportunities based on the strength of a stock's momentum.
You can learn more about such indicators from one of the best technical analysis courses offered by Upsurge.club.
4. RSI 14D
The relative strength indicator is important in determining
price changes across stocks. With the help of RSI 14D, you keep track of the
price changes and the speed of particular stocks. The daily price gains and
losses are compared to understand the price changes, which can help you whether
the stock is overbought or sold.
RSI 14D index will eventually range from 0 to 100. If the value
is over 80, the stock has been overbought. However, if the value is less than
20, the stock is oversold.
5. Average Directional Index (ADX)
The Average Directional Index (ADX) indicator is a popular
tool used to identify momentum stocks in the financial markets. Developed by J.
Welles Wilder, the ADX measures the strength of a stock's trend, regardless of
whether it is an uptrend or a downtrend. The ADX value ranges from 0 to 100,
with higher values indicating a stronger trend.
You can use the ADX indicator to assess the momentum in a
stock, as well as to determine the potential for a trend reversal. When the ADX
value is above a certain threshold, typically 25 or 30, it suggests a trending
market and potentially lucrative momentum trading opportunities.
If you want to invest in momentum stocks, you can consider
these five practices. In case you're a beginner and want to learn more about
momentum trading, you can take up the momentum investing course offered by
Upsurge.club. This course will help you develop a strong foundation of momentum
investing and make informed decisions.