Momentum stocks are a favourite among traders and investors because of their potential to deliver significant returns within short timeframes. Whether you’re trading intraday, swing trading, or focusing on day trading, understanding how to find momentum stocks is essential for optimising your strategies.
This guide explores practical methods to identify momentum stocks and answers key questions about their characteristics, tools, and significance.
What Are Momentum Stocks and Why Are They Popular among Traders?
Momentum stocks are shares of companies experiencing substantial price movements driven by high trading volumes. These movements often occur due to strong earnings reports, sector trends, or positive market sentiment.
They are popular among traders because:
- They offer high return potential within a short period.
- They exhibit strong trends, making it easier for them to trade with technical indicators.
- They thrive in volatile market conditions, creating ample opportunities for day and swing traders.
How Do Momentum Stocks Differ from Value or Growth Stocks?
While value stocks are undervalued compared to their intrinsic worth and growth stocks, focus on companies with high potential for future earnings, momentum stocks capitalise on current market trends. Their appeal lies in their ability to sustain strong price movements, which traders can leverage for quick gains.
How Can You Identify Momentum Stocks?
1. Identify Momentum Indicators
Technical analysis plays a crucial role in spotting momentum stocks. Use indicators such as:
- Relative Strength Index (RSI):
- RSI values above 70 indicate overbought conditions, signalling strong upward momentum.
- Moving Averages (MA):
- Crossovers of short-term and long-term moving averages (e.g., 10-day crossing 50-day) often indicate momentum shifts.
- Volume Indicators:
- Look for unusual spikes in trading volume. High volume confirms the strength of a trend.
2. Scan for High Momentum Stocks in Sectors
Sectors often exhibit synchronised momentum. For instance, renewable energy stocks might surge following favourable government policies. Use stock screener tools to filter:
- High relative strength (RS).
- Stocks hitting new 52-week highs.
- High percentage gainers in the last trading session.
3. Use Pre-Market and Intraday Scanners
- Pre-market Scanners: Identify stocks showing strong activity before the market opens.
- Intraday Scanners: Track stocks with high intraday volume and price changes.
4. Fundamental Triggers
While momentum trading relies heavily on technicals, fundamental news like earnings beats, sector upgrades, or acquisitions can spark momentum.
How to Find Momentum Stocks for Different Strategies?
Swing Trading
Swing trading involves holding stocks for several days to weeks to capitalise on short- to medium-term price movements. To succeed, it’s essential to understand how to find momentum stocks for swing trading effectively.
Here are some proven strategies:
- Breakouts Above Resistance: Focus on stocks breaking through resistance levels with substantial volume, as this often signals the beginning of a sustained upward trend.
- Indicator Confirmation: Use tools like RSI and MACD to validate momentum and identify ideal entry and exit points.
- Fundamental Review: Prioritise stocks with strong earnings, positive news, or favourable guidance to ensure robust fundamentals support the price movements.
You can identify and leverage momentum stocks with the right approach to optimise swing trading outcomes.
Intraday Trading
Intraday trading requires real-time analysis and execution. Key techniques:
- Gap Scanning: Identify stocks opening significantly higher or lower due to overnight news or earnings announcements.
- VWAP (Volume Weighted Average Price): Determine buying or selling pressure by monitoring whether the stock trades above or below VWAP.
Day Trading
Day trading requires precision and agility. Use these methods:
- Relative Volume (RVOL): Focus on stocks with RVOL significantly higher than their average, signalling increased activity.
- Candlestick Patterns: Look for bullish engulfing or hammer patterns to identify trend reversals.
- News Catalysts: Monitor breaking news, which often sparks strong intraday momentum.
What Tools Can Help Identify Momentum Stocks?
Momentum trading demands precision, and the right tools can help identify opportunities quickly and effectively. Here are four essential tools to enhance your search for momentum stocks:
1. Stock Screeners
Stock screeners simplify the process of filtering stocks based on technical and fundamental criteria. Key options include:
- TradingView: Customise scans for RSI, moving averages, and volume spikes.
- Chartink: Tailored to Indian markets, it helps identify stocks hitting new highs or with unusual volume surges.
- Finviz: Excellent for global markets, offering heatmaps and performance-based filters.
2. Pre-Market and Intraday Scanners
Scanners help track momentum stocks in real-time or before markets open:
- Pre-Market Scanners: Platforms like Moneycontrol highlight stocks with pre-market activity based on earnings announcements or overnight news.
- Intraday Scanners: Tools like Zerodha Kite track high-volume and price-moving stocks during market hours.
3. Technical Analysis Software
Advanced charting tools help analyse stock trends and confirm momentum indicators:
- MetaTrader: Offers built-in indicators like RSI and MACD for quick momentum analysis.
- Zerodha Streak: A user-friendly tool for backtesting and tracking Indian stock market trends.
4. News Platforms
Momentum often stems from breaking news or updates:
- Bloomberg Terminal: Provides real-time market-moving news and financial data.
- Moneycontrol Pro: Offers insights into earnings, upgrades, or policy changes driving market trends.
These tools can effectively help identify high-potential momentum stocks and align them with your trading strategy.
Conclusion: Master Momentum Stock Strategies
Finding momentum stocks requires combining technical indicators, real-time market monitoring, and sectoral analysis. For traders, these stocks offer opportunities for quick gains, while investors can benefit from sustained trends when aligned with fundamentals. You can precisely identify and act on momentum trends by leveraging tools such as stock screeners and pre-market scanners.
At Streetgains, we provide data-driven insights and research to help traders and investors identify high-potential momentum stocks. Our tools, expert-curated research, and actionable strategies empower you to make smarter investment decisions.
Disclaimer:
The content in this blog is intended for informational purposes only and does not constitute investment advice, stock recommendations, or trade calls by Streetgains. The securities and examples mentioned are purely for illustration and are not recommendatory. Investments in the securities market are subject to market risks. Please read all related documents carefully before investing.
FAQs :
1. What are momentum stocks, and why are they popular among traders?
Momentum stocks are shares of companies experiencing significant price movements fueled by high trading volumes. These stocks are popular because they offer high return potential within short timeframes and thrive in volatile market conditions, providing ample opportunities for day and swing traders.
2. How do momentum stocks differ from value or growth stocks?
Momentum stocks capitalise on current market trends and substantial price shifts, unlike value stocks, which are undervalued, or growth stocks, which focus on future earnings potential. They appeal to traders looking to leverage short-term trends for quick gains.
3. What are the key indicators used to identify momentum stocks?
Indicators like the Relative Strength Index (RSI), moving average crossovers, and volume spikes help identify momentum stocks. These tools measure price strength, trend shifts, and confirmation of strong market activity.
4. How do moving averages play a role in spotting momentum stocks?
Moving averages smooth out price data to highlight trends. Crossovers, such as a short-term moving average crossing above a long-term one, signal momentum shifts and potential entry points for traders.
5. Can you use technical analysis to find momentum stocks effectively? If so, how?
Yes, technical analysis is a reliable method for spotting momentum stocks. By combining indicators like RSI, MACD, and volume analysis with chart patterns, traders can identify strong trends and make informed decisions.
6. What role does volume play in identifying momentum trends?
Volume confirms the strength of a price movement. Spikes in trading volume often indicate sustained momentum, signalling to traders that a stock’s trend is backed by market activity.
7. How do Streetgains help traders identify momentum stocks?
Streetgains provides data-driven research, advanced tools, and expert-curated insights to help traders identify high-potential momentum stocks. Leveraging technical and fundamental analysis empowers traders to make smarter investment decisions.
FAQs:
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1. How to earn money daily from trading?
Earning money daily from trading involves strategies like day trading, where traders capitalise on small price movements within the same day. Success requires real-time market analysis, quick decision-making, and risk management.
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2. How to earn money from equity trading?
To earn money from equity trading, you need to buy stocks at a lower price and sell them at a higher price. Success depends on researching companies, analysing stock trends, and using technical or fundamental analysis.
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3. How to earn money from share trading in India?
In India, share trading offers profit potential through buying and selling stocks on exchanges like the NSE and BSE. To maximise returns, traders should use market research, tools like technical analysis, and risk management strategies.
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4. How to make money from share trading in India?
Making money from share trading involves selecting the right stocks, timing the market, and implementing trading strategies like swing trading or day trading while staying informed about market trends.
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5. How to transfer money from a trading account to a bank account?
To transfer money from your trading account to your bank, log into your trading platform, navigate to the funds section, and initiate a withdrawal request. The money will typically be credited to your linked bank account in 1 to 3 days.
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6. How to withdraw money from a trading account?
You can withdraw funds by logging into your trading account, selecting the withdrawal option, and selecting the amount to transfer to your bank account. Ensure your bank account is linked and follow any steps your broker requires.
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