Want learn how to scan for momentum stocks?
I am going to share to you what I learned about momentum trading. You may wonder, what are momentum stocks.
You can scan for momentum stocks by looking for stocks that are 20% below the 52-week high. You can use Amibroker or investing.com free stock screener to do this.
In this post, you will learn how to make your investing skyrocket.
- What is a 52-week high?
- Why buy within 20% from the high?
- Fundamental filters you can use.
- How to exit the trade?
- How to use a free tool?
What is a 52-week high?
The 52-week high is the highest price of the stock in the last 52 weeks. Most traders consider this as an essential level to determine the value of the stock.
As the price of the stock move closer to the high, more traders have increased interest in the stocks.
The study showed that volume traded in the stock had increased significantly once the price crossed the 52-week high. (source)
Also, most traders and investors consider this as a breakout, and it signals high momentum.
How does it benefit traders or investors like us?
Later on, I am going to show you how professionals do it.
20% below the 52-week high
Why do I buy within 20% below the high? I buy at this level because I am anticipating a breakout.
I don’t want to miss out on the opportunity. Well, if you buy at the break of the 52-week high, you are already too late.
It’s the ultimate technique I used to reduce my losses.
If the trade is unsuccessful, I can exit with a minimal loss.
After you take the trade, you have to set a risk-reward ratio if you are a swing trader.
For my swing trades, I set it as 2:1 minimum. I set trail stops if more than that.
Furthermore, Do not exit the trade below two times your risk because we are on the numbers game.
The risk reward ratio has been my arsenal even if I took a lot of losses.
Always remember, we can’t win every trade, and using a 2:1 ratio can make us profitable even with just 40% win rate.
As for my long term trades, I will discuss exits later on.
When you scan for momentum stocks, you often get several results. It can be confusing which stocks to buy depending upon your capital.
Here’s the trick, I use fundamental filters to reduce the number of results. Of course, you need more to be able to select the best stock.
I use a total of six filters in my advanced technique.
How to exit the trade
I already shared my exit strategy when it comes to swing trading above.
Let’s talk about long term investing. Here’s the trick, since we buy within 20% below the 52-week high, we will exit the trade below 30%.
As this happens, we will consider the trade invalid too at this point.
We are risking a maximum of 30% to earn 60% as a minimum for swing traders.
Also, For long term traders, you will have unlimited income for a maximum risk of 30%.
How do you improve with this strategy?
Well, don’t buy within 10% below the 52-week high to increase your chances.
How to use a tool
There is a free stock momentum scanner that is available on this site.
The scanner has advanced features which process thousands of stocks faster.
Because it is faster, it can be used in momentum scanning.
In momentum scanning, I use the 52-week high to find uptrend stocks that have very high momentum to profit in the stock market fast.
You can read this post to use a free tool for this.
Also, I suggest you watch the video till the end. I guarantee you will be blown away with this technique.
I know that you are excited about using this strategy, but you have to backtest it before you use it.
Well, I have been successful with momentum trading. I know this strategy works.
However, for you, don’t just believe me, test it, and see how it works.
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