Momentum Stocks Investing

Momentum stocks investing is a strategy that relies largely on wise stock-picking and proper timing. A trader using this strategy stands to rake in profits when done correctly. This high-risk strategy is undertaken by experienced traders who has a mastery of the market and an understanding of the workings of stock trading. Knowing what to invest in, when to invest, and when to unload are key elements of success in this trading strategy.

There are several considerations to take note of when doing momentum stocks investing. It is important to find out which industries are performing more than market standards. Stocks with a positive ticker for the past couple of years and earnings in the 15% and up level are good stocks to check out. Stocks that are performing way beyond the stock market indices over the past years are good picks. Generally, this trading strategy should be taken on at a time when the market is bullish.

There are measures to determine entry and exit points in momentum stocks investing. In a system he designed, Dr. Alexander Elder used two indicators measuring market inertia and market momentum to determine when to get in and when to get out of trading on momentum. The exponential moving average (EMA) is used to determine market uptrends and downtrends while the moving-average-convergence-divergence (MACD) histogram is used to reflect changes in the bullishness or bearishness of the market. An entry signal would be indicated when both indicators are moving in the same direction. When any one of these indicators, however, takes a different direction or when both indicators fall, it is a sign that it is time to exit the position.