At a minimum, these studies indicate at least 50% of aspiring day traders will not be profitable. This reiterates that consistently making money trading stocks is not easy. Day Trading is a high risk activity and can result in the loss of your entire investment.

momentum trading strategy

Economists try to explain the effects of momentum investing using the efficient-market theory. Whenthe momentum indicatorrises above the zero line, it means the price is trending upward, so it’s a good time to buy. When the indicator drops below the zero line, the price is trending downward, so you should sell. The risks of loss from investing in CFDs can be substantial and the value of your investments may fluctuate. 75% of retail client accounts lose money when trading CFDs, with this investment provider. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

Momentum trading strategies

Water Stocks You can’t go wrong with stocks that offer something everything on the planet needs to survive. Most Undervalued Stocks for 2022 These stocks can be a great bargain for the right investor. Momentum trading can make money if things go well, but it isn’t right for everyone.


He also notes the price objective that is often provided with every signal. Here, the chart pattern indicated that the price would rise to $13.38 following the breakout. In Excel, Henning uses the rank function to first order and smooth the investment value for each stock in the watchlist. The results of this ranking are then divided by each stock’s three-month price gain to give priority to those stocks experiencing strong upward price momentum over the last three months.


When the indicator line enters the overbought zone, there is a potential sell signal. Enter a sell trade when the trend is down, and the momentum oscillator consolidates above level 100. Momentum with the period of 4 serves as an oscillator and generates trading signals. Upon reaching these zones, the price was rising, as the market was oversold, and more favourable prices were needed to enter new trades. The daily USDCHF chart shows that the indicator forms its highs when the deviation is 1.5%…2%. These ranges will serve as the oversold/overbought conditions.

These are chart patterns which signal the price is likely to continue in the direction of the trend. Now, one of the earliest forms of momentum trading is in the Future market — and it’s used by the Turtle Traders, Market Wizards, Hedge Funds, etc. You may want to enter when an instrument is showing short-term strength or wait for a pullback and buy on weakness. Either approach can work; the important point is to execute a plan. Determine the number of stocks and ETFs trading close to their yearly highs.

Many of the techniques he used became the basics of what is now called investing. Skilled traders understand when to enter into a position, how long to hold it for, and when to exit; they can also react to short-term, news-driven spikes or selloffs. Momentum investing is a trading strategy in which investors buy securities that are rising and sell them when they look to have peaked. Investments in stocks, options, ETFs and other instruments are subject to risks, including possible loss of the amount invested.

RSI Indicator: How to Use, Best Settings, Buy and Sell Signals

By investing in stocks with price momentum, Henning feels he increases his chances of achieving his goal of 10% average monthly investment returns. The second part of this trading strategy uses the Stochastic Oscillator to identify correction. As a bound oscillator that fluctuates between 0 and 100, the Stochastic Oscillator is ideal for spotting short-term pullbacks or bounces. A move below 20 signals a pullback in prices, while a move above 80 signals a bounce in prices. This strategy means buying when the momentum indicator crosses above the moving average from below, and sell when the momentum indicator crosses below the moving average from above. The momentum indicator can be used to provide trade signals, but it is better used to help confirm the validity of trades based on price actions such as breakouts or pullbacks.

Here’s Why Momentum in Publicis Groupe SA (PUBGY) Should … – Nasdaq

Here’s Why Momentum in Publicis Groupe SA (PUBGY) Should ….

Posted: Thu, 23 Feb 2023 13:50:00 GMT [source]

Throughout his book, Henning advocates a pragmatic approach to trading. He is more concerned with the results—in terms of profitability—of a trading system than understanding exactly why the system works. The decision to increase or decrease sensitivity rests with the characteristics of the underlying security. Stocks with lower volatility, such as those in the utilities and consumer staples sectors, would warrant more sensitive settings.

How to Use Momentum Trading Strategies Profitably

Here you will see the implementation of the famous golden cross and death cross algorithm. The stochastic oscillator compares an asset’s most recent closing price to the prices over a specified period of time. When the closing price is near the high of the price range for the time period, the trend is positive. When the closing price is near the low, this indicates a downward trend.

price movement or take partial profits when crossovers signal potential trend changes. Position management takes time to master because these securities often carry wide bid/ask spreads. Wide spreads require larger movement in your favor to reach profitability while also grinding through wide intraday ranges that expose stops—even thoughtechnicalsremain intact. 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.

Exponential Average, Stochastic Oscillator %K and %D, Relative Strength Index, Rate Of Change, Momentum . Familiarise yourself with our range of technical momentum indicators, which are not limited to the list above. We also have awesome oscillator and stochastic momentum index indicators.

Therefore, you can use the MACD in momentum trading when the two main moving averages have a crossover. For example, if the price of an asset is in a bullish momentum and the two moving averages crossover, it is usually a sign that the momentum is waning and it is time to short. Moving averages are used by traders to spot emerging trends in markets. They use a formula that filters out random fluctuations to show a prevailing price trend.


At present I am investing on long-term basis and good results and very much Happy with the returns. I want to start trading shortly and watching articles related… thanks… waiting further. Well, read this carefully – if the stock has done well for the last 12 months, then it implies that the stock has good momentum for the defined time frame.

Leave a Reply

Your email address will not be published. Required fields are marked *