A few momentum investors prefer to use even longer-term MAs for signaling purposes. Using a free version of a stock screener can be beneficial for new traders to test the tools and understand their functionality before committing to a paid plan. Many traders consider the MACD indicator to be one of the most reliable momentum indicators. Especially at times when its movement diverges from the movement of price (moves in the opposite direction).

Related investing topics

In individual securities, market momentum for a particular stock can be driven by several factors. Positive momentum can be the result of increasing revenue, earnings, or sales. Positive momentum can also be influenced by a reduction in a company’s debt obligations and an increase in its projected cash flow. Negative market momentum can be caused by news about an industry, new government regulations, or changes in leadership at the company. It can also be due to waning popular interest in a security that became temporarily well-known or exciting. Investors and technical traders can follow several indicators to gauge market momentum.

Market Momentum Formula

This indicator, often overlooked due to its simplicity, is another essential tool. It compares the last closing price with a previous one, typically from 14 periods Stock Momentum ago (although some traders use 30 periods for smoother signals). Using momentum indicators to trade is about preference, strategy and the trading environment.

How do you use a momentum indicator?

• 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.
• The VGM Score is a combination of all Style Scores, making it one of the most comprehensive indicators to use with the Zacks Rank.
• Premium indicators can be more precise, offer more information, and be as flexible as the trader needs them to be, which is why they are premium.
• The most popular fall into three categories, as explained in the following momentum indicators list.
• Watch for the “flavor of the day” when new products, divisions, or concepts capture the public’s imagination, forcing analysts to throw away calculations and recompute profit estimates.
• However, the system generally seeks stocks with both earnings and sales momentum and tends to point to stocks with price momentum, as well.
• The KST is a composite indicator that combines four different time frames to provide a clearer picture of price momentum and identify buy and sell signals.

This equation can lead to the drawing of a trendline with varying periods used in the calculation. Gordon Scott has been an active investor and technical analyst or 20+ years.

Momentum Tools

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. The cruise line’s revenue growth has slowed over the last seven quarters after rebounding following the coronavirus pandemic. Revenue increased 15% to a record $7.89 billion, topping views for $7.82 billion. “While this would be a bold target at first blush, we do not believe that the building blocks are overly optimistic,” Citi wrote.

Carnival Cruise Earnings

As a certified market analyst, I use its state-of-the-art AI automation to recognize and test chart patterns and indicators for reliability and profitability. It has a gaming platform (Garena), an e-commerce platform (Shopee), and a digital payments platform (SeaMoney). In 2023, SeaMoney’s e-commerce revenue grew by 23% year over year, and financial services revenue increased 44%. Shopee saw 46% more orders in the fourth quarter than in the same period in 2022, and despite the rapid growth in SeaMoney, loan quality remained stable. If you aren’t familiar with its business, Kinsale is an insurance company.

Reversal Trading

When using momentum indicators, it’s important to remember that they are just one piece of the puzzle. They should be used with other technical and fundamental analysis tools to make informed trading decisions. Momentum indicators are useful tools for traders to identify potential market trends. Momentum indicators use mathematical calculations to measure the rate of change of a stock’s price over time. There are several types of momentum indicators, each with its unique formula and interpretation. Momentum investing is quite different from many of the strategies typically employed by long-term investors.

Spotting Hidden Divergences in Price Action

• The MACD and RSI are both free indicators widely available on charting platforms.
• In addition, some strategies involve both momentum factors and some fundamental factors.
• Overall lists include only NYSE, NYSE Arca and NASDAQ stocks, excluding ETF’s.
• It has a dominant 75% share of social network ad spending and roughly one-fifth of all digital ad spending in the United States.
• Yes, momentum trading strategies have proven to be effective in various market conditions, especially in markets that exhibit strong trends.
• A simple average of daily price gains and daily price losses is compared with each other to calculate relative strength.

Plus, the business has been (successfully) leveraging AI technology to improve engagement and content personalization. Without looking at the price of the S&P and only using momentum, we can see that it’s likely the S&P index rallied in tandem with the spikes above zero on the momentum indicator below. Conversely, the index likely fell on the large downward moves below zero.

Do momentum trading strategies work?

Understanding overbought and oversold conditions, divergence, and centerline crossovers can help you better interpret these indicators and make more informed trading decisions. To identify divergence, traders often compare a stock’s price to the moving average convergence divergence (MACD) or the relative strength index (RSI). If the price is making higher highs, but the momentum indicator is making lower highs, it may be a sign of bearish divergence. Conversely, if the price is making lower lows, but the momentum indicator is making higher lows, it may be a sign of bullish divergence.

• “Likewise, 2026 is off to an unprecedented start achieving record booking volumes in the last three months.”
• Generally, they look for stocks that are trading above their moving averages as a sign that they will continue moving higher.
• 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.
• Each indicator has different uses, and some can be used together to strengthen and complement the trader’s research.
• 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.
• Stocks that are prone to upside momentum are often equally prone to big moves to the downside when sentiment changes.
• There are several types of momentum indicators, each with its unique formula and interpretation.
• The market context includes overall market trends, news, and economic data.

Top 4 Best Momentum Indicators Explained & Tested

A veteran journalist with extensive capital markets experience, Jeff has written about Wall Street and investing since 2008. His work has appeared in numerous respected finance outlets, including CNBC, the Fox Business Network, the Wall Street Journal digital network, USA Today and CNN Money. Stocks that are prone to upside momentum are often equally prone to big moves to the downside when sentiment changes. That means if you buy at the wrong time or in the wrong stock, you could see a dramatic loss rather than the big profit you had hoped for. The information contained on this website is solely for educational purposes, and does not constitute investment advice. You must review and agree to our Disclaimers and Terms and Conditions before using this site.

Leveraging the Emotions and Rash Decisions of Other Investors

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.

Benefits of Momentum Investing

Momentum investing can be a great way to identify opportunities, but like any other investment strategy, it isn’t perfect. Just because a stock has recently outperformed the market doesn’t mean it will continue to do so. The top momentum stocks are those that have recently outperformed the S&P 500 and have excellent fundamentals in their underlying businesses.

What is the 5-minute momentum trading strategy?

When the Green KST Line is above the Signal Line, it is a signal to buy, indicating a bullish trend. Conversely, when the Green KST Line falls below the Signal Line, it is a signal to sell, suggesting a bearish trend. By understanding the fundamentals of the KST oscillator and incorporating it into their trading systems, traders can make more informed decisions and improve their overall trading performance.

How can you identify momentum stocks for intraday trading?

Kinsale had delivered a 36% gain year to date as of mid-April, but its momentum has essentially been going strong since its 2016 initial public offering (IPO). In all, it has delivered a 2,460% total return (more than 50% annualized) due to its incredible profitability and strong growth. In fact, in its worst year since going public, Kinsale still managed a 10% gain for investors. It wasn’t too long ago that investors started to lose faith in Robinhood (HOOD 0.17%) after trust issues with the platform developed among retail investors during the meme stock frenzy. However, the company has done an excellent job of moving forward, and investors were the beneficiaries of a 32% gain through mid-April 2024.

To add strength to the crossover signals, traders will use both the EMAs and the histogram. In addition, traders use price crossing over the zero line for bullish or bearish signals. The generally understood trigger for trades using the MACD is when the signal line crosses the histogram (crossover). This can be interpreted as a change in the market’s momentum, which could lead to a change in the price trend. There’s an old saying about investing that the best way to make money is to buy low and sell high.

In order to uncover these stocks poised to trade higher, you need to learn the basics of how to identify a momentum stock. The squeeze momentum indicator helps traders identify periods of low volatility and predict potential breakouts in a stock’s price movement. Traders can use this indicator to enter or exit trades based on the stock’s momentum and volatility levels.

How Do Technical Indicators Aid In Momentum Trading?

• A proprietary stock-rating model, the Zacks Rank utilizes the power of earnings estimate revisions, or changes to a company’s earnings outlook, to help investors create a successful portfolio.
• Because they are dealing with stocks that will crest and go down again, they need to jump in early and get out fast.
• Hence, it’s advisable to use the RSI in conjunction with other technical indicators to gain a more comprehensive view of the market conditions.
• Some stock scanners offer to simplify scanning for high momentum stocks with their own proprietary momentum indicator that combines several price action factors.
• The 5-minute momentum trading strategy is a popular method among day traders, focusing on short-term movements in highly liquid assets.
• There are several indicators that help in identifying stocks with good momentum.
• A nine-day EMA of the MACD called the “signal line,” is then plotted on top of the MACD.

For U.S. Markets, only NYSE and NASDAQ stocks are included, excluding ETF’s. NYSE and NASDAQ stocks also exclude unit investment trusts, closed end funds, warrant stocks, preferred securities and any non-SIC classified stock. There are many charting software programs and investing websites that can measure momentum for a stock so that investors don’t have to calculate it anymore. However, it’s important to understand what goes into those calculations to better understand what variables are used in determining a stock’s momentum or trend.

Momentum is the speed or velocity of price changes in a stock, security, or tradable instrument. Momentum shows the rate of change in price movement over a period of time to help investors determine the strength of a trend. Stocks that tend to move with the strength of momentum are called momentum stocks. For investors who want a more hands-on approach without full-time commitment, many financial and brokerage platforms offer momentum screening tools.

It involves holding overnight positions, so closing prices and next-day opening prices impact. If the surge doesn’t happen but remains within your risk management threshold, you can look for another opportunity to buy or sell the next day. Candlestick charts are the best to analyze setups for both day traders and swing traders. A green or white candlestick means the close was higher than the previous close for a particular session, whereas a red or black candlestick indicates a lower finish from the last close.

Kinsale is the only publicly traded pure play on specialty insurance and has lots of room to grow. This is a highly fragmented industry, and Kinsale makes up a little more than 1% of the market today. Meta’s social media platforms have almost 4 billion monthly active users worldwide and have a massive presence in the digital advertising industry, where the company makes most of its money. It has a dominant 75% share of social network ad spending and roughly one-fifth of all digital ad spending in the United States.

Carnival stock broke out as cruise lines rallied on strong momentum, with most set to report Q3 earnings this month. 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. 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. Traders can search for stocks with bullish momentum by specifying that a scanner looks for stocks with a MACD histogram value greater than zero or where the MACD line is above the signal line. Conversely, bearish momentum is reflected by the MACD line crossing to below the signal line and/or by a negative histogram number (below zero).