Other indicators can be used along with RSI to strengthen this conclusion. To reach the best evaluation, experts generally chart the RSI on a daily time frame rather than hourly. However, sometimes shorter hourly periods are charted to indicate whether it is a good idea to make a short-term asset purchase.

• Some are hotter than others (as measured by growth over a period of time).
• Conversely, if the RSI is below 30, it’s a sign that the market may be oversold and due for a bounce.
• To understand momentum indicators, you first need to understand momentum.
• 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.
• The cruise line’s revenue growth has slowed over the last seven quarters after rebounding following the coronavirus pandemic.
• To identify overbought and oversold conditions, traders often use the relative strength index (RSI) or the stochastic oscillator.

Top Momentum Indicators

Momentum traders usually have strong trading instincts to feel where the market is heading and ride the trend. This is because they help in spotting emerging trends by smoothing out price fluctuations over a specified period. While not directly indicative of momentum, moving averages are instrumental in helping traders determine if a market is confined within a range or exhibiting a clear trend. Momentum trading in the financial markets refers to a strategy where traders capitalize on the current direction of instrument prices, riding the wave of market trends to earn profits. This approach relies on the principle that assets that are moving in a particular direction are likely to continue moving in that direction for a certain period. The stochastic oscillator is a momentum indicator that compares a stock’s closing price to its price range over a specified period.

• For momentum investors, the most profitable part of the ride is when prices are moving at a high velocity.
• The most basic momentum indicator compares the last closing price to a previous closing price from a set number of periods ago.
• 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.
• Finding the best momentum stocks can sometimes pay off for nimble investors.
• The percentage of stocks in $BCMM above their individual Moving Average per period.
• When the Green KST Line is above the Signal Line, it is a signal to buy, indicating a bullish trend.
• Traders should be cautious when relying solely on momentum indicators for their trading decisions.

Finding Momentum Stocks by Using a Stock Scanner

In fact, in its worst year since going public, Kinsale still managed a 10% gain for investors. If you aren’t familiar with its business, Kinsale is an insurance company. Instead of providing coverage for everyday Americans, however, the company specializes in the unusual. Kinsale is a specialty insurer, focusing on property and casualty insurance for high-risk businesses and situations where it’s difficult to accurately estimate risk of loss. For example, many traditional liability insurers wouldn’t provide coverage for a demolition business; Kinsale would. It wasn’t too long ago that investors started to lose faith in Robinhood (HOOD -1.7%) after trust issues with the platform developed among retail investors during the meme stock frenzy.

Leveraging the Emotions and Rash Decisions of Other Investors

The RS line, the blue line in the chart provided, tracks a stock’s performance vs. the S&P 500. The firm upgraded Norwegian Cruise Line to buy from neutral and raised its price target to 30, up from 20, citing its recent strategy shift. Carnival stock broke out as cruise lines rallied on strong momentum, with most set to report Q3 earnings this month. Investors can count on the Zacks Rank’s success, with #1 (Strong Buy) stocks producing an unmatched +25.41% average annual return since 1988, more than double the S&P 500’s performance. But the model rates a large number of stocks, and there are over 200 companies with a Strong Buy rank, plus another 600 with a #2 (Buy) rank, on any given day. Momentum traders benefit from herd mentality, greed, and fear of missing out.

Calculating Momentum

• While there’s no way to time the market or know what stocks will gain momentum at any given time, there are some interesting opportunities for patient momentum stock investors.
• Profits rely on market volatility and optimally timing your transactions.
• Not only did it deliver a 58% gain for investors through mid-April, but the company more than tripled over the past year.
• Alternately, the price could pierce the third or fourth standard deviation of a top or bottom 20-day Bollinger Band.
• NYSE and NASDAQ stocks also exclude unit investment trusts, closed end funds, warrant stocks, preferred securities and any non-SIC classified stock.
• But pointing to an old winner is much harder than getting in on the ground floor of tomorrow’s next momentum stock standouts.
• This approach enhances the accuracy and reliability of trading decisions based on the RSI.

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.

Best Technical Momentum Indicators

There is no single momentum technical indicator that fits all occasions. That’s why it’s essential to know different indicators and how to use them in different trading strategies. Finding the best momentum stocks can sometimes pay off for nimble investors. Momentum bucks traditional investing principles, yet research supports its merit. Reversal trading is a strategy that involves identifying potential turning points in the market and entering trades in the opposite direction of the prevailing trend. This approach can be more challenging, requiring you to accurately predict when a trend is about to reverse.

Trend Momentum with ADX

We perform original research and testing on charts, indicators, patterns, strategies, and tools. Our strategic partnerships with trusted companies support our mission to empower self-directed investors while sustaining our business operations. Traders utilize the KST oscillator by observing the relationship between the Green KST Line and the Signal Line.

Trading Strategies with Momentum Scanners

When making trading decisions, it is important to consider other factors, such as market trends, news events, and economic indicators. Momentum indicators are lagging indicators, which means that they are based on past price movements. As a result, they may not always provide accurate signals for future price movements. Traders should always use other indicators and tools with momentum indicators to confirm their signals.

How can you identify momentum stocks for intraday trading?

Your selection of momentum indicator should depend on your trading strategy and investment goals. It is essential that you do your research before making an investment decision. On the chart below, two kinds of signals can be observed with the momentum indicator divergences (blue lines) and overbought and oversold signals (red circles). For example, traders are advised to avoid using a momentum indicator suited for sideways markets when a market is trending. Liberated Stock Trader, founded in 2009, is committed to providing unbiased investing education through high-quality courses and books.

How to Become a Good Momentum Trader?

“With nearly half of 2025 booked and less inventory remaining for sale than the prior year, we are leveraging strong demand to achieve record ticket pricing,” Weinstein said in the release. “Likewise, 2026 is off to an unprecedented start achieving record booking volumes in the last three months.” The firm also expects Royal Caribbean to announce a long-term plan within the next two quarters, likely in conjunction with its Q3 or Q4 report. Citi said it doesn’t see any reason that the cruise operator can’t achieve $20 per share in earnings.

Some stock scanners offer to simplify scanning for high momentum stocks with their own proprietary momentum indicator that combines several price action factors. Most of these indicators allow you to add your own custom screening criteria if you wish. In addition to these, the Average Directional Index (ADX) is also a valuable momentum indicator.

However, the company has done an excellent job of moving forward, and investors were the beneficiaries of a 32% gain through mid-April 2024. Market Momentum highlights major market indices and market rates, and also displays a market momentum summary box. It is calculated as the difference between the MACD indicator and the signal line. A positive MACD line 2 value indicated that the MACD line 1 value is greater than the signal line value. There can be different interpretations of this value depending upon the absolute value of the MACD line 1.

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.

Choosing a Momentum Scanner

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.

Spotting Hidden Divergences in Price Action

• Relative momentum compares securities against peers to identify the strongest performers.
• We explain and test four popular momentum indicators for reliability and to deduce the best settings for traders.
• Yes, momentum indicators can help traders identify potential trends, but they are not usually more than 60% accurate, according to our indicator research.
• Using these momentum indicators, you can gain valuable insights into the stock market and make informed trading decisions.
• The default setting is 14, but ome traders use 30 to further smooth out the signals.
• In fact, in its worst year since going public, Kinsale still managed a 10% gain for investors.

Perfect for day traders and active investors who want to stay ahead of the trend and make money. With a momentum scanner you can filter through thousands of stocks in seconds and find the ones that match your criteria, saving you time and improving your strategy. Overall, momentum indicators are powerful tools to help you make better trading decisions.

What are the drawbacks of momentum investing?

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 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.

• By the end of the fourth month, the price falls to $30, then to $25 in the fifth month, and finally down to $20 in the sixth month.
• Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader.
• In a similar respect, some high-flying momentum stocks are pricey for good reason and are likely to be in store for continued and sustained gains.
• 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.
• That could stretch closer to 30% if the cruise operator can sustain its 2.5% yield/cost spread.
• For example, traders are advised to avoid using a momentum indicator suited for sideways markets when a market is trending.
• However, incorporating momentum indicators into your trading strategy can increase your chances of success and help you make more informed decisions.
• However, the train moves but at a higher velocity because all of the momentum built up from accelerating is propelling it forward.
• 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.

Is momentum investing good?

They also demand a disciplined approach to risk management and an ability to interpret market signals accurately. It’s important to practice and become comfortable with the methods in a simulated trading environment before applying them in real trading scenarios. The MACD indicator compares a longer exponential moving average (EMA) with a shorter-term EMA to produce the MACD line, followed by a histogram and a signal line. The crossover of the signal line and the histogram is generally seen as an indicator of a shift in the market’s momentum, which could signal a change in the price trend.

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.

These automated investment services use algorithms to create and manage portfolios, with some allowing users to tilt their allocations using momentum strategies. Exit when the price is moving rapidly into an overextended technical state. This overextended state is often identified by a series of vertical bars on the 60-minute chart.

Viking Holdings (VIK) jumped 2.6% Wednesday to clear a 37.25 buy point for an 11-week consolidation. Carnival Cruise stock vaulted 7% Wednesday to 20.20, Stock Momentum clearing a 19.09 buy point for a cup-with-handle base. Royal Caribbean on Tuesday announced it changed itineraries for eight ships to avoid the storm.

It ranges from 0 to 100, with readings above 80 indicating overbought conditions and below 20 indicating oversold conditions. Traders use the stochastic oscillator to identify potential trend reversals and confirm a trend’s strength. Momentum stocks indicate a high potential for profits over a short period of time. Momentum investors can leverage the shifts in the stock prices that arise due to emotional investors instead of giving in to emotional responses to a stock price. They can take the volatility factor in their stride and use it to their advantage by maximising their returns on investment through momentum trading.

This kind of trading follows the market, rather than buying low and selling high. This momentum can continue in an upward or downward trend, and it is measured by technical indicators. Momentum traders are typically short-term traders – either day traders looking for intraday profits or short to medium term swing traders. Different stock screeners are tailored to accommodate various trading styles, making it crucial to choose the right screener based on a trader’s specific approach. This strategy utilizes the Relative Strength Index (RSI) to identify hidden divergences in price action.

This can signify that the trend is losing momentum and may be due for a reversal. While there’s no way to time the market or know what stocks will gain momentum at any given time, there are some interesting opportunities for patient momentum stock investors. Keep reading to see five momentum stocks that have already delivered strong results for investors and could continue to outperform.

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.

Momentum indicators are meant to help traders spot whether the market trend will continue or reverse. Beyond that challenge of identifying stocks with a difficult-to-define “it” factor, it is also important to understand that momentum cuts both ways. Just as some stocks seem to go up illogically just because investors like them, other stocks can crash and burn when Wall Street gives up on them. That’s true regardless of the facts of the news cycle or hard numbers around earnings or sales. Some companies are trading at low levels for good reason and are likely to see further declines.