How to trade momentum | stockbee

12/10/2009

How to trade momentum


"Valuation does not guarantee price, which is what we are trying to forecast. More often, valuation is a measure of risk level. Price, as many of us , learned in Economics 101, is determined by the laws of supply and demand which are in turn bounded by the human emotion of fear and greed!
What's unique about price momentum based ranking system that no other variable claim, is that price cannot diverge from itself. Valuation, earnings estimates, economic fundamentals all have potential to move in the opposite direction of price, but price cannot diverge from itself. As a result, price momentum based ranking systems will lock on to the correct side of the trends. They also tend to get us out after a modest drawdown, thereby allowing profits to run while losses are cut short."

Being Right or Making Money - Ned Davis Research

Momentum is commonly used term in stock trading. So what really is momentum. If you try and search on Google for "How to trade momentum" you will get these 5 top links.




  1. TradingDay.com Technical Analysis Tutorial - Mastering The ...

    - Dec 9
    Always trade by the numbers and not the news. Use their cold logic to painlessly exitmomentum positions and move on quickly to the next opportunity. ...
    www.tradingday.com › Technical Analysis Tutorial - Cached - Similar -
  2. I Trade Momentum Stocks And Consistently Make Over 100% in Bull ...

    - 3 visits - Dec 9
    This lets me trade with amazing returns on investment – like this: 2003 ... After a bear market where there were few good trades in momentum stocks and ...
    www.crispstocks.com/ - Cached - Similar -
  3. How to Momentum Trade Stocks | eHow.com

    - Dec 9
    How to Momentum Trade Stocks. Momentum trading of stocks is for the intermediate or advanced trader. Momentum trading of stocks is a spur of the moment ...
    www.ehow.com › ... › Other Business Management - Cached - Similar -
  4. Momentum Trading with Discipline

    - 3 visits - Dec 9
    Momentum trading requires a massive display of discipline, ... All markets trend within any given week, and the best stocks to trade are those that ...
    www.investopedia.com › Articles - Cached - Similar -
  5. Introduction To Trading: Momentum Traders

    Or will the breakout fizzle quickly, providing some limited upside but not sufficient profit to make the trade worthwhile? Whether the momentum fizzles ...
    www.investopedia.com › Articles - Cached - Similar -
  6. How to Successfully Short-term Trade Momentum Stocks

    - 8:30am
    Finding a sensible entry point for your stock trade is every bit as important as finding a goodtrade. Larry Connors suggests you keep these guidelines in ...
    www.tradingmarkets.com/..../How-to-Successfully-Short-term-Trade-Momentum-Stoc-81316.cfm - Cached - Similar -

Try making sense of them and you will be completely lost. It is lot of words and lot of non specific advice without explaining what really is involved in trading momentum. Do they answer the question which are necessary to trade momentum:
What is momentum
How is it calculated
What are different methods of calculating momentum.
What are the advantage and disadvantage of each method of calculating momentum.
How to rank stocks using momentum
How to find a trading setup in momentum stock.
How to enter, exit, put stop, take profit, decide how much to risk and so on.
How does overall market affect momentum strategies
How to trade momentum from short term, medium term, or long term perspective
And many such specific information is needed if you want to trade momentum successfully. So sometime back I wrote a multi page document on the Members Site to explain some of the above issues in great details.
In a very simple term momentum means rate of change (ROC). The rate at which a stock is going up or down for a specific period of time. If you rank stocks by rate of change then the top ranked stock is the fastest moving stock for the period of ROC calculation.
So how to we calculate ROC. We do this by calculating rate of change in prices over a defined period like 1 month, 3 month, six month, or a year. Rate of change tells us percent by which price of a stock went up or down for a specified period. To calculate Rate of Change (ROC) we need two prices:
  1. Price in earlier point in time
  2. Price in later point in time
ROC= [(Number at later time ÷ Number at earlier time) - 1] × 100

So to calculate a 3 month ROC for a stock today we need:
  1. Price 3 month ago
  2. Price today
Mathematically ROC in this case is then:
[(Price today ÷ Price 3 month ago) - 1] × 100

So in Telechart to calculate 3 month ROC we will write a scan like
[(c ÷ c65) - 1] × 100or the same thing simplified will be
100*(c-c65)/c65
where we assume there are 65 days in 3 months of trading.

Now using same logic if you want to calculate 6 month and 1 year ROC you will get:

Six month ROC
100*(c-c130)/c130
One year ROC
100*(c-c260)/c260

Now if you sort the All Stocks list by these ROC values, you can pick top 10% stocks. That will be your trading universe.
If you are using Telechart your task is easy. There are number of pre defined ROc scans under the "System Sort" sorting function. If you look at the list you will find following ROC scans in Telechart:

Price Growth Rate

1-year
2-year
3-year
5-year

Price

Percent Change 1 month
Percent Change 26-weeks
Percent Change 5-year

You can use these ROC/ Relative Strength scans to build variety of long term and short term trading systems.
This is the simplest way to calculate ROC. But other ways of calculating ROC have many advantages. Over next week I will dig out my momentum folder and write about various ways to calculate ROC and convert them in to swing trading methods.
Top momentum stocks for today
AIXG
AMD
BONT
CAAS
CATM
CMFO
CYTX
DAN
GOL
GY
HEAT
HGSI
HL
HPJ
ICOC
IO
IOC
KNDI
MED
NABI
NANO
NLST
NTRI
REV
RINO
ROY
SANM
SEED
SNIC
THM
TSTC
UAUA
UFS
VECO




Are you serious about your trading?

If you are serious about your trading and want to build an enduring edge the Stockbee Member site might help you. Members tell me they have tried lot of things before coming to my site and it has offered them the most extensive and detailed methods to swing and position trade.

It is only for those who want to develop their own self sufficient trading method. It is not a stock picking service. It is service for you to build your own scans and trading method to have your own daily pick based on your method.

Be warned it will take you time to learn to trade. Learning to trade is difficult art and unless you are willing to spend months or years to perfect your strategy and also develop your mental edge you are unlikely to succeed in this game. Unless you understand that no site, no service, and no mentoring is going to work.

Why traders come to stockbee?

The member site is one of the most recommended site for learning to trade by other traders and bloggers. You will see no advertising, no hard marketing, no promotions, no free offers, no affiliate marketing, no incentive to other bloggers to promote the site, no constant twits self promoting the site, no free trial  and no tall claims of making you instantly wealthy, and yet the site attracts new  members everyday. Members come from all walks of life and all kinds of trading size and trading styles.

You will see that many trading bloggers have been using my market timing methods, scans , stock ranking lists and chart templates. They have developed their own methods based on my methods. Many paid newsletter site recommend my site to their subscriber for learning about trading and market.

Over the years thousands of traders have been members and those who benefited from the learning talk about the site to others or talk about the methods used and that is how new members learn about the site.





What will I learn in the members site?

The members site will give you in depth understanding to develop your own trading method. The emphasis is on making you self sufficient and confident of your own trading method and style.

As a member you will learn the basics of swing trading, momentum investing, growth investing and risk management.

You will learn about Stockbee Trend Intensity Breakouts method that uses momentum based swing trading to find 3 to 5 day swing trades for 8 to 40% profit.

You will learn about Stockbee Episodic Pivots Breakout method which uses Post Earnings Announcement Drift (PEAD) to find stocks that had a game changing earnings and that are likely to rally for 3 months to 12 months.

You will learn about  Stockbee Dollar Breakout method that uses momentum, range expansion and swing trading approach to find 5 to 40 dollar moves in high priced stocks.

You will learn about  Stockbee Lemonade Strategy for 401k which uses market timing and momentum to invest in 401k. You will get weekly update on how I am using the strategy on our 401k to do allocation decision.

You will learn about Stockbee Market Monitor method for market timing using breadth. It allows you to avoid risky periods in market and allows you to identify market turns. It is used for 401k allocation decisions.

You will learn about Stockbee Double Trouble method to find stock with confirmed upside momentum using anchored momentum and that are likely to continue their up move.

You will learn about Stockbee Night Time is Right Time method to find news catalyst based trade ideas for short term day trade and swing trade.

You will learn about Investor's Business Daily’s IBD 200 list and how it can be used to find swing trading candidates for explosive moves.

You will learn about Telechart 2000 and how to use it effectively to scan for swing and position trade ideas and to set up your 401k strategy.

You will learn about Jesse Livermore Range Breakout, Darvas Box setup, and many other member shared methods.

You will learn how to set up your own scans, select right kind of stocks, how to set up stops, when to enter , when to exit, how much to risk, how to track your trades and all other details about trading. You will learn about developing your own methods and not relying on others for trade ideas.

The site has hundreds of videos and trading methods and variation of methods. Members help each other in developing the methods and share actively their research and finding. A collaborative spirit allows you to get input from others on your trading ideas or problems.

The site gives you opportunity to interact with some of the most successful traders and learn from them about their trading methods. It is a vibrant community with members from different background and experience willing to help each other. The emphasis is on continuous learning and up gradation of market knowledge and setup knowledge. The members range from hedge fund employees, financial advisers, active swing traders, investors and new traders.

If you are looking to develop your own trading strategy the membership site might be for you. You have to be willing to put in the effort to build your own method. There are no silver bullets offered on members site. Every method, every scan, every nuance is detailed and all possible help is offered to design your own method.

Do you have a trial?

If you are just looking for trial you are better off trying thousands of other trading sites that offer free trial or one month trial and offer you promise of riches.

It is for those who are ready beyond the trial phase and ready to put serious months or years  of efforts to learn to trade on their own. It is for those who want to learn to find their own fish.

The free blog has all the details about the methods I trade and if you go through the posts highlighted in the sidebar you will learn about them.



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