How to use momentum to find explosive stocks

Understanding Momentum helps you find explosive stocks and exploit them as swing trader or position trader. As a trader you want to be in stocks that for a given holding period are the fastest moving stocks.

At simplest level momentum is rate of change (ROC) with which stock is going up or down. It measures speed of a move. Knowing ROC of stocks allows us to rank them and focus on those with top speed.

Let us say if you want to focus on say only 50 strongest stocks in the market. You can find them if you understand momentum. If you want to narrow your focus and only focus on best stocks in the market , focusing on 200 stocks with most momentum is sufficient to find big moves both for swing and position traders.

Momentum is time specific. In order to find stocks with momentum you must first decide your time frame. A time frame of 3 to 6 month is good for finding momentum stocks.


How can you scan for momentum?

There are many ways to rank stocks by momentum and every method has some advantages and disadvantages. Once you understand momentum you can use it creatively to find many kinds of stocks

Let us say we are talking about momentum on 6 month time frame to rank stocks

6 month = 126 trading days

Using Telechart we can find momentum in various ways

c/c126

will give you six month momentum compared to price 126 days ago

c/avgc126

will give you six month momentum compared to average price of 126 days

c/minl126

will give you six month anchored momentum compared to lowest price in 126 days

(c/c63+c63/c126)/2

will give you six month momentum calculated as equal weighted 2 period for 3 months

There are many many ways to slice and dice momentum. But all the above momentum scans can be used to rank stocks . They help you find relative momentum for a universe of stock. These are simplest scans for momentum, you can improve on these by using absolute momentum scans instead of relative momentum.