The core of both day and swing trading is to search for momentum in stock price movement. The more you focus your research on this strategy, the better your chances of consistently earning money in the market. In order to uncover these stocks poised to trade higher, you need to learn the basics of how to identify a momentum stock. 

What is a Momentum Stock?

Momentum stocks are defined by their technical price history. A high momentum leader is in a hot sector and is trading higher on volume. Ultimately it’s a stock that consistently outperforms broader indexes such as the S&P 500, Nasdaq, and Dow-Jones

High momentum stocks are common when the market’s in a strong uptrend. Thousands of stocks are listed in the market, with good momentum that traders can profit from; traders will need to calculate the strength behind a big move.

Do You Need Help Finding Momentum Stocks?

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How to Calculate Stock Momentum

One way to measure momentum in the stock market is by looking at Relative Strength (RS), which relates to how well a stock performs compared with the broader index. RS ratings are published on financial websites such as Investor’s Business Daily (IBD). These scores range from 1 as the lowest and 99 as the highest. A stock with an RS rating of 99 means it’s outperforming 99 percent of other stocks.

Using a stock momentum scanner that allows you to customize parameters such as finding stocks hitting new highs can also help. You’ll want to scan RS levels between 80 to 99. RS tells you how your stock is trading relative to the S&P 500 and should not be confused with RSI, which stands for Relative Strength Index. RSI is another good indicator of price momentum, as it’s used to determine whether a stock is overbought or oversold. An RSI rating of 70 or higher indicates the stock is overbought, while 30 and below means it’s oversold.

Stock momentum can also be measured by the MACD, which stands for Moving Average Convergence Divergence. This visual metric allows you to observe lines on a histogram chart. It reveals when a stock is shifting direction based on moving averages. The “MACD line” on the chart is calculated by subtracting the stock’s 26-day Exponential Moving Average (EMA) from its 12-day EMA. This line is compared with the 9-day EMA known as the “signal line.” When the lines cross, it signals a change in momentum. The MACD and RSI are both free indicators widely available on charting platforms.

Momentum Stocks: MACD and RSI

Sources for Momentum Data

Finding a stock screener for momentum trading that fits your style might take experimenting with multiple indicators and metrics. Various online stock screeners provide momentum data such as trading volume and moving averages. Access to premium tools usually requires a subscription, but here are basic stock screeners you can use for free:



Free stock scanners are great, but they are very limited in what they can offer in terms of customization and functionality. If you are looking for an advanced stock screener to propel your research in the stock universe. You might consider a premium stock scanner. We can recommend our very own proprietary scan, the Simpler Scanner. The Simpler Scanner has many features that can cater to your strategy and assist you in analyzing the market.   

How to Analyze Momentum

When you trade the stock market, your likelihood of succeeding improves if you have strategies, setups, and market indicators that increase your odds of uncovering a stock with positive momentum.

Momentum Indicators

There are several ways indicators can help identify which stocks have positive or negative momentum. Understanding how the momentum is trending in your stock position is valuable information.

Free Momentum Indicators

Some of the best indicators that professionals use are free and available on almost every platform available. The momentum indicators below are some of the proven indicators that traders use. Each indicator has different uses, and some can be used together to strengthen and complement the trader’s research.

  • Moving Averages Convergence Divergence (MACD): The indicator confirms the trend of a stock price and can help traders find entry and exit points. 
  • Relative Strength Index (RSI): The indicator measures stocks based on their value. As stated before, that value can range from 0 to 100. Stocks measured 30 or below are considered oversold, and anything 70 and above is overbought. 
  • Volume: the momentum behind the trend of a stock. If the stock trend is down, the volume would indicate how plausible the downward trend has become.

Premium Indicators

Professional traders may love the free indicators as they serve a valuable purpose, but the professionals will always rely on the premium indicators in the market. 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.

  • 10x Bars Indicator: The 10x Bars Indicator can help the trader understand a specific position’s trend quality and strength. Traders can identify high potential buy setups and stay out of false ones. 
  • The Squeeze Pro: The Squeeze Pro Indicator is one of the most popular indicators on the market where traders can find bigger and faster setups by calculating several components of the market, including momentum.

How to Find Intraday Momentum Picks

The secret to day trading is self-discipline with tighter risk management than other investment styles. You need to wait until buying volume comes in to ride the wave before the price fades. Successful day traders pay close attention to high volume, which is one way to find momentum targets for day trading.

Savvy day traders typically limit trading to the first few hours of the trading session, usually when the highest volume of the day occurs. It’s a big mix of retail and pro traders responding to the latest market news. Some criteria to consider when day trading are:

– Higher than average trading volume for the stock

– Fast-moving bid to ask spreads

– Pullback from a recent high with signs of steady support

– Price level is near a 52-week high or all-time high

– Long green candlestick confirmation

– Stock moves above its 50-day moving average

– Volume-weighted average price (VWAP) indicates momentum within a time frame

The beauty of Candlestick Charts

Candlestick charts are the best to analyze setups for both day traders and swing traders. It displays daily opening and closing prices as well as highs and lows. 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. Highs and lows are indicated by wicks that extend from the tops and bottoms of candlesticks.

Candlesticks present a compelling visual presentation; it gives clues to which prices the market likes the most for buying and selling. You can also overlay volume levels on your candlestick charts. High-volume bars suggest heavy interest in buying or selling. A stock that surges in volume on good news is often a good candidate for trading momentum.

How to Find Momentum Stocks for Swing Trading

Swing trading requires a different entry and exit approach than day trading. 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.

The key to identifying momentum stocks is avoiding high-risk stocks and focusing more on high-performance stocks. Swing traders can find high-quality stocks by scanning for momentum stocks and trading the best positions. If you are interested in trading the best stocks in the market, you should consider signing up for The MEM Edge Report. My report is updated twice a week with carefully chosen stocks that I think are the best in the market. Sign up today and start trading with confidence.

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FAQs of momentum Stocks

Q: What is momentum stock trading?

A: Momentum trading relies on technical data that implies a continuation in price direction. Some of the top traders use setups of stocks at 52-week highs or all-time highs. But not all stocks trading higher exhibit characteristics for sustained gains upward.

Q: Is it safe to hold a momentum-driven stock as an investment?

A: Yes, there are momentum plays that work nicely as long-term investments. The more you get into long-term investing, the more you should pay attention to the company’s fundamentals. Apple comes to mind as an example of a stock with enormous momentum before its 7-for-1 split in 2020. If you bought $1,000 worth of AAPL in 2011, it would’ve been worth well over $10,000 today.

Q: How important are stop-loss orders when trading momentum-based stocks?

A: A stop-loss order automatically exits a trade if the price goes too far in the wrong direction. The trader customizes the threshold level. It’s considered a strong risk management strategy to avoid excessive losses, even for stocks that appear to be picking up in momentum. Taking small losses instead of waiting for the price to come back helps preserve capital.

Q: What are momentum stocks?

A: Stocks that tend to move with the strength of the momentum – either to the upside or downside are viewed as momentum stocks. Typically, the focus is on consistent upward movers. Short selling has a different mindset and plays off both fundamental and technical weaknesses.

Q: What are the keys to successfully trading momentum stocks?

A: Instead of the old advice “buy low, sell high,” focus on the theme of “buy high, sell higher” when assessing momentum candidates. You need the right stocks and the right setups. The right stocks are chronic market winners that outperform broad indexes. The right setups typically involve pullbacks in an uptrend following a confirmation signal of upward momentum.

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