6 Best Momentum Scanner Tools & Indicators

Stop losses are crucial in momentum trading because they protect against sudden reversals that can quickly erode gains. They help traders limit losses by automatically exiting a position if the trade moves against them. Day trading works well with momentum strategies, but it forces players to take larger positions to compensate for not having the greater profit potential of multiday holds. Conversely, it is best to cut your position size when holding for multiple sessions to allow for greater movement and stop placement further away from the present action. Seek out securities that trade more than 5 million shares per day whenever possible. Some low float issues can turn into highly liquid instruments when news happens, and volatility spikes as intense emotional reactions draw in market players from diverse sources.

ADX (Average Directional Index)

Momentum trading is a strategy that seeks to capitalize on momentum to enter a trend as it is picking up steam. Since momentum can be quite powerful and indicate a strong trend, investors need to recognize when they’re investing with or against the momentum of a stock or the overall market. Suppose you invest for six months, and you have $10,000 to invest in each stock.

Carnival Cruise Earnings

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.

Trading Trends & Reversals

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.

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Trading based on trend strength, rather than just on trend direction, increases your chances of being able to maximize potential trend trading profits. 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. Using a momentum scanner will give you an edge in the market and help you make better and more timely trades. There are various volatility based indicators available in most stock trading tools and brokerage platforms. We define momentum as the past 12-month return, skipping the most recent month’s return (to avoid microstructure and liquidity biases).

Best Technical Momentum Indicators

Generally, they look for stocks that are trading above their moving averages as a sign that they will continue moving higher. Alternatively, short-sellers look to capitalize on a stock that’s on a downward trend. Momentum investing can also be a popular strategy among professional investors such as hedge funds. Welles Wilder Jr. in the late 1970s; his “New Concepts in Trading Systems” (1978) is now an investment-lit classic. Once these numbers are charted, they can be compared to thresholds to see if the stock is oversold or overbought.

How to find momentum stocks using a stock screener?

Market momentum indexes provide momentum indicators for various market sectors. MSCI and FTSE Russell are two companies that have introduced momentum indexes. It is important to recognize that many traders view the RSI value of 50 to be a support and resistance benchmark.

• This indicator operates on the principle that price retracements within specific levels can reveal discernible market trends.
• The momentum indicators listed above can be used for mean reversions, range bound markets and trends.
• It’s important to practice and become comfortable with the methods in a simulated trading environment before applying them in real trading scenarios.
• In other words, it is about buying stocks that are about to soar and selling them at a much higher price.
• Another point to note is that we consider the stock screener as a tool for long-term analysis.

What Is Market Sentiment?

Citi also upgraded Norwegian Cruise Line Holdings (NCLH) and opened a “90-day positive catalyst watch” for Royal Caribbean (RCL), as part of the earnings preview for the industry. A positive chart pattern named such because it resembles the outline of a coffee cup with a handle. The pattern can last from seven weeks to as long as a year, but most are three to six months.

What is momentum investing?

Alternately, the price could pierce the third or fourth standard deviation of a top or bottom 20-day Bollinger Band. CEO Josh Weinstein said unit operating income increased 26% due to operational improvements and high-margin, same-ship yield growth. Carnival’s advanced booked position for 2025 is already ahead of 2024’s record, with higher prices than last year. Weinstein added that Carnival is well-positioned with a stronger base of business for 2025 and set for a record start to 2026. You want to make sure you’re buying stocks with the highest likelihood of success, and to do that, you’ll need to pick stocks with a Zacks Rank #1 or #2 that also have Style Scores of A or B.

Relative volume

• A low float momentum scanner identifies stocks with low float and combines this filtered universe of stock with unfolding momentum.
• 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.
• This momentum can continue in an upward or downward trend, and it is measured by technical indicators.
• You can use technical analysis tools like volume, moving averages, and trend lines to identify momentum stocks for intraday trading.
• Trend following is a popular approach that involves identifying the direction of the market trend and then entering trades in the same direction.
• The top momentum stocks are those that have recently outperformed the S&P 500 and have excellent fundamentals in their underlying businesses.

However, even though it’s sound nice, riding the momentum is not that easy. It’s a skill that you might naturally have or one that you need to master. I mean, we pretty much know that some of the best traders in the world are those who know how to catch the wave and ride the momentum.

Reversal Trading

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. Crucially, one of the backbones of momentum trading is recognizing and leveraging volatility in the market. Volatility, in this context, represents the extent of price fluctuations of an asset. Momentum trading strategies usually target short-term market movements, making them versatile enough to align with various trading styles, from day trading to longer-term position trading. The key is to identify the asset of interest, devise a strategy based on technical analysis and indicators, and then execute trades in live markets. There are several momentum indicators that technical analysts can use in momentum trading.

Momentum investing is an investment approach that emphasizes buying stocks whose share prices are rising, with the expectation that the price will continue to move higher. Other momentum indicators useful for reversal trading include the Stochastic Oscillator, ADX, the Williams %R, and the Commodity Channel Index (CCI). To understand momentum indicators, you first need to understand momentum. In 2023, Nvidia’s revenue grew by 126% year over year, and net income was almost six times what it was in 2022 (when the business was already very large and impressive). Nvidia (NVDA 0.29%) is perhaps the most notable momentum stock in the market as of April 2024.

Top Indicators and Tools for Momentum Trading Strategies

Past performance is not a guarantee of future returns, but it is often a good indicator of positive trends in a business, which can certainly lead to superior returns over time. Plus, bull markets can be a great opportunity to take advantage of strong momentum in excellent, well-run businesses. If you’re looking for stocks that can thrive in the new bull market, this list represents a good starting point. Just like any other trading style, there are risks that come with momentum trading. By using this technique, you should know that you are trading on the backs of other people in the market, and price trends are never guaranteed.

• However, if there’s negative news about the company or the industry, that bullish signal might not be reliable.
• Momentum has a natural time element to it, so you have to think beyond today’s closing price and identify long-term momentum trends by investigating price and volume patterns in charts.
• That’s true regardless of the facts of the news cycle or hard numbers around earnings or sales.
• Often called RVOL, relative volume is the ratio of the average volume of the stock over the previous ten days divided by the average volume of the stock over the previous 91 days.
• Generally, CCI is used to find indications of a new trend when ranges break.
• Stay away from leveraged or inverse ETFs because their price swings don’t accurately track underlying indices or futures markets due to complex fund construction.
• Conversely, when the Green KST Line falls below the Signal Line, it is a signal to sell, suggesting a bearish trend.

What Is Momentum Investing?

The Value Style Score utilizes ratios like P/E, PEG, Price/Sales, Price/Cash Flow, and a host of other multiples to help pick out the most attractive and discounted stocks. Like other momentum systems, CAN SLIM also includes rules for when to enter and exit stocks, based mainly on technical analysis. The high of day momentum scanner identifies stocks trading at the high of the day with high relative volume.

All three cruise line industry leaders — Royal Caribbean, Carnival and Norwegian Cruise Line — are based in Miami, which is on Florida’s east coast and well south of Milton’s projected track. Meanwhile, Hurricane Milton moved toward Florida’s west coast on Wednesday. Still ranked as a category 5 storm, meteorologists expect it will inflict significant damage in the Tampa area after it makes landfall. Tampa’s usually busy commercial port was closed as of Wednesday morning.

It is calculated using the difference between 12 and 26 days Exponential Price Average (EPA). Momentum is the rate of acceleration of a security’s price—that is, the speed at which the price is changing. Market momentum refers to the aggregate rate of acceleration for the broader market as a whole. Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance.

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.

For example, some equity traders closely watch the Treasury yield curve and use it as a momentum signal for equity entries and exits. A 10-year Treasury yield above the two-year yield generally is a buy signal, whereas a two-year yield trading above the 10-year yield is a sell signal. Notably, the two-year versus 10-year Treasury yields tend to be a strong predictor of recessions, and also has implications for stock markets. In the stock market, momentum trading looks to profit from investing in “hot” stocks – expecting them to stay hot – and dumping “cold” stocks, expecting them to stay cold. 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.

This strategy requires good timing and an understanding of market momentum. It’s important to choose instruments with high liquidity and to be aware of any news or events that might impact stock prices. No indicator or strategy is foolproof, and the market can be unpredictable. However, incorporating momentum indicators into your trading strategy can increase your chances of success and help you make more informed decisions. If you rely too heavily on indicators, you may miss important signals from other sources.

• Tesla held its initial public offering (IPO) back in 2010 at $17 a share.
• It takes discipline to trade this way because the trade must be closed at the first sign of weakness, and the funds must be immediately placed into a different asset showing strength.
• Momentum indicators are most effective in trending markets and may not be as useful in range-bound markets.
• For example, if you only look at your momentum indicator and do not pay attention to price action or volume, you might miss important signals that could impact your trades.
• Market momentum can be used as a measure of overall market sentiment that can support buying and selling with and against market trends.
• It often gets overlooked for the more popular (and complicated) indicators mentioned above.
• As its name suggests, when the lines converge, the price tends to continue in the direction of the trend.

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

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 Stock Momentum 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.

• In addition to these, the Average Directional Index (ADX) is also a valuable momentum indicator.
• 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.
• Finding the best momentum stocks to now isn’t always about fundamental analysis.
• 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.
• It is calculated using the difference between 12 and 26 days Exponential Price Average (EPA).
• Traders typically use technical indicators like moving averages or RSI to confirm the momentum and set tight stop-losses to manage risk.
• Gordon Scott has been an active investor and technical analyst or 20+ years.
• In fixed-income securities, falling interest rates can be a catalyst for price momentum.

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”.

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.

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Automated trading can be helpful to execute trades with higher accuracy and frequency. Below you find an example of a Momo-scanner that helps you hunt for momentum. First, you configure your scanner by defining values for your preferred filters and alerts.

The following month, it climbs to $75; by the end of the third month, it reaches $85. The upward trend continues, with the price increasing to $90 in the fourth month, $95 in the fifth month, and finally hitting $100 in the sixth month. As a result, the investment in Stock A grows from $10,000 to $20,000, reflecting a remarkable 100% increase.

Momentum investing works best in a bull market because investors tend to herd a lot more. In a bear market, the margin for profit on momentum investing shrinks in accordance with increased investor caution. Even though low-cost brokers are slowly putting an end to the problem of high fees, this is still a major concern for most rookie momentum traders. Momentum investing can turn into large profits for the trader who has the right personality, can handle the risks involved, and can dedicate themselves to sticking to the strategy. The relative strength line cleared consolidation highs to its best levels since January.

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.

Rather, they are speculative bets on what they will become in the future. KST aggregates multiple rate-of-change calculations, providing a smoothed view of price trends while filtering out market noise. In this article, we’ll explain momentum indicators, how to use them, and common mistakes to avoid.