Indicators Track Momentum In Stock Trading


Simpler Trading Team

Jun 02nd 2022  .  7 min read

In this article:

  • AAPL sets up as measure of stock momentum
  • Indicators reveal market momentum
  • Following this uncertain market pattern

This market is all about mixed messaging with traders struggling to identify momentum stocks, sectors, or indexes.

Start, pause, stumble, pause, repeat – where are the signals that could reveal market direction in all the uncertainty?

Simpler’s traders define key stock chart signals that can reveal market momentum in stock trading and then default to these signals when the market slips into uncertainty.

(Check out the free video, above, for insight into trading this changing market.)

Is AAPL a key momentum stock?

One of the highest profile momentum stocks on the radar within the Simpler Trading world is Apple (AAPL).

This technology stock is considered a “leader” or “bellwether” indicator for market momentum. Apple is a leader in the technology space and a high-value stock within the Dow, Nasdaq, and S&P 500.

Simpler’s traders have held that Apple (AAPL) is a key signal of market momentum in a bearish market. The assertion is that if Apple falls the market will spiral downward, or it could help sustain momentum to the upside. Here’s action in Apple – Closed up today at: $151.21. Apple grew from a pandemic low of $57.21 in March 2020, but is still down from $182.01 since Jan. 1.

With a 1.68% gain today, Apple is holding better compared to last week, and matching the rise across the major indexes.

Henry Gambell, Senior Managing Director of Options Trading at Simpler Trading, delivered a free video analysis on Wednesday of Apple and a possible buying setup from the recent bounce.

As an example, he is watching these key indicators of price movement in AAPL:

  • AAPL has closed above the 21-day exponential moving average (EMA) three times over recent sessions. This after repeatedly closing below the 21-day EMA in its fall to current price levels.
  • Henry considered the possibility of AAPL respecting the $148.58 price point on Thursday as a signal of possible move higher to $155. (AAPL closed at $151.21 on Thursday.)
  • Henry is following the 30-minute daily stock chart showing a squeeze building in AAPL, and anticipates working this possibility through Friday.

There are nuances to this example, and Henry encourages traders to consider this momentum in stock price within the context that AAPL doesn’t trade in vacuum. Overall momentum in the indexes and influences outside the stock market should be considered.

Find a stock momentum trading mentor

If you are looking for a trading mentor who has “been there, done that” then consider getting to know more of the team members at Simpler Trading. Each has a unique style and strategy with a focus on reaching financial freedom.

You can get to know our team members through our community of like-minded traders. Gain access to live-trading sessions and real-time stock alerts while learning how professionals operate in this market. Give it a try today.

Looking for help finding momentum stocks?

Any edge can be a welcome addition to a trader’s toolbox, and finding momentum stocks can be an involved process.

Consider tapping into the insight of a veteran trader who picks high-quality stocks showing promise in a negative market environment.

Mary Ellen McGonagle, Senior Managing Director of Equities at Simpler Trading, has 20 years of experience informing traders of outperforming stocks. Try The MEM Edge Weekly Report to develop confidence finding momentum stocks.

Measuring stock momentum with price action

Measuring momentum is a process of focusing on a fixed time period – like the 30-minute daily chart in the example above – and constantly calculating price differences.

Momentum can be measured in various ways using data sources or stock chart indicators. This direction-centered technical analysis is foundational in trading for determining direction of assets, sectors, indexes, and the overall market.

Bullish or bearish, short-term or long-term, buy or sell, decisions will all be measured at some point using momentum tools.

Look at momentum stocks as an example.

Momentum stocks are revealed by analyzing historical or current price movement. The goal is to anticipate where the stock is moving – up, down, or sideways. This helps make decisions about what stock to trade and when, as well as when to exit trades.

The strength behind momentum can help determine if the target is outperforming similar assets side-by-side or within a sector, or across the broader market. Characteristics of a momentum leader include trading at a higher volume and within a sector or index showing similar momentum.

Traders can use various tools to calculate stock momentum, including:

  • Relative Strength (RS) ratings – This shows how well a stock performs against the broader S&P 500 index. (This data is published on a variety of financial websites.) RS scores range from 1-99 with a higher rating signaling the stock is outperforming against other listed assets. So, a 99 RS rating shows the stock outperforms 99 percent of stocks in the S&P 500.
  • Relative Strength Index (RSI) – RSI tracks price momentum to reveal if a stock is overbought or oversold. Higher numbers – above 70 – indicate an overbought stock while lower numbers – 30 and below – indicate an oversold stock.
  • Moving Average Convergence Divergence (MACD) – This tool allows traders to follow momentum metrics on a histogram chart. MACD indicates a shift in stock direction based on moving averages.

These indicators provide a snapshot view of the market as traders try to determine momentum.

Go-to tools for charting stock momentum

Traders can easily run into a problem when following momentum on stock charts where the indicators on the computer screen get “squiggly.”

Managing the number of chart tools visible while trading can keep traders focused on the value of indicators – these tools help increase efficiency and accuracy of trading decisions in a fast-paced, never-ending trading environment.

Stock charting tools – indicators – are a way for retail (individual) traders to manage the daily deluge of market data and variables displayed on a chart. Indicators are designed to track technical and analytical information, and identify momentum stocks.

What trader doesn’t want to know momentum in a stock price in the future, based on past and present price information?

Indicators are the go-to tools used by Simpler’s traders to identify momentum trading opportunities based on trends in chart patterns and stock price.

Will the market reveal its true health?

Was the move higher today just another example of the market continuing its pattern of start, pause, stumble, pause, repeat?

A weak outlook in key technology player Microsoft, disappointing non-farm job numbers, rising inflation, and continued overall economic uncertainty didn’t seem to phase the market. The indexes rose – started again – to push the market toward finishing the week higher.

The Dow jumped to 33,248.28 points to gain 1.33% (adding 435.05 points on the day). The Nasdaq cut a two-day losing run to tally 12,316.90 points for a 2.69% boost while the S&P 500 spiked 1.84% to 4,176.82 points.

Traders must ask, “Will this market momentum be sustained or is another bearish stumble just around the corner?”

Last week the market headed into the three-day weekend showing a short squeeze. Simpler’s traders aren’t making hasty assumptions of this market being out of the woods and shifting to the upside.

The next few days are expected to reveal insight into the health of the market and whether there will be a sustained rally or another stumble.

Simpler’s traders have paused long-term trades for the most part and are concentrating on what the market reveals daily.

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