Momentum Stock Trading
5 Stock Momentum Indicators to Start

Momentum Stock Trading
5 Steps to Get Started with Momentum Investing

Want to make fast cash?
Ready to make big profits but limited risks?

If both answers are yes, you MUST continue reading.

Trading momentum stocks or known as momentum investing is about buying and selling shares that are most likely to double, triple or even quadruple in six to 12-month.

The working principle is quite simple; buy stocks that about to take-off, and sell the shares when the prices fly high. However, buying any stocks and expect it to triple in seconds is the highway to bankruptcy.

Thus, I'd formulated 5 critical stock momentum indicators that you can use to start trading momentum stocks. Be selective on stocks to trade as well as the right time to buy and you'll get what you are looking for!

Stock Momentum Indicators #1: Relative Strength

Relative Strength (RS) is calculated by dividing stock's price by the index performance for the same period of time. It shows how strong the stock had performed relative to other stocks in the same industry. For example, 12-month relative strength of 80 means that the stock had outperforms 80 per cent of other stocks in that industry for the past one-year.

In momentum stock trading game, stocks that had performed previously will be most likely continued to outperform in the future. For this reason, 12-month relative strength minimum of 85 can be a good candidate.

Moreover, you can compare and observe price performance of six-month and three-month relative strength, preferably more than 70 and 60 respectively.

Stock Momentum Indicators #2: Revenue Growth

Stocks with 15 per cent quarterly year-on-year revenue growth is another important momentum indicator. It means, the stock had better sales for the same quarter as compared to previous year. For example, Q1 2007 as compared to Q2 2006.

You can use sequential revenue growth like quarter-to-quarter increase as well. For instance, Q2 2007 as compared to Q1 2007. It can give you some general idea on how the stock will perform for the next quarter, so that you can estimate how much money you are going to make in the next quarter!

By the way, strong revenue growth shows that the company's products or services have very strong demand in niche market.

Stock Momentum Indicators #3: Earnings Development

Nothing beats profits especially for momentum stock trading. You got to leverage on the latest quarterly earnings reports to make money. For that reason, keep your eyes open when it comes to earnings growth.

Buy momentum stocks right before they announce the latest earnings and sell them after market cools down is the way to make quick cash from momentum investing.

But it doesn't works on any stocks.

The stock got to be earning 15 per cent year-on-year quarterly profits growth. You can use quarterly forecast growth from analysts' rating as that will be the current market expectation on that stocks. However, be careful on abnormally high quarterly earnings growth because that can be an indication of exceptionally low profits in the previous year.

Stock Momentum Indicators #4: Return on Equity

Return on Equity (ROE) indicates how effective the management is in utilising the shareholders' fund. Of course the higher the better. In fact, I'd suggested 15 per cent ROE to pick good stock. But momentum stock trading can be limited if you decided to use the same figure. For that reason, I find 5-10 per cent ROE as acceptable.

The lower ROE than normal is because, these stocks are normally have to use cash quite intensively to generate as much profits as they can.

Besides, if the companies are small in size and not as famous as Google or Microsoft, to find interested shareholders or money lenders can be a daunting tasks. Like it or not, they have to utilize their own money to make more money, which results to lower ROE.

Stock Momentum Indicators #5: Trading Volume

Momentum stock trading is about buying and selling the hottest stock in town, or maybe in the whole stock market. Top ten stocks that was traded most actively can be a great signal that the stock is in favor currently.

Look for stocks that was traded 100,000 shares per day the least. You can be sure that the stock won't lose interest any soonest.

Moreover, avoid stock that lack in volume. The reason is, the stock can be lack of catalyst for fly higher.

Highly Recommended FREE Sign Up

Additional Reading

Swing Trading Strategy: Basic Tip & How to Guide for Beginners
Start with basic principle, why it is so popular, how to make sure your swing trading strategy is profitable and its advantages & disadvantages.

Day Trading vs Trend Trading: Which The Best Trading Strategy?
What is the day trading basic principle? How it works compared to trend trading? And which trading strategy is best fo you? Find out here...

Related Books

Search Here For More Information

Top Page of Momentum Stock Trading

Back to Homepage