How to Select Momentum Stocks for Trading?

How to Select Momentum Stocks for Trading?

 

Momentum is one of the important factors in Trading, Momentum is the measurement of the speed or velocity of price changes in stock. It’s important to select a good momentum stock to get better returns from the market. There are scalpers, Positional Traders, swing Traders everyone selects the momentum stocks to get maximum profit.

 

What is the difference between the Professional Trader and the Novice Trader?

 

Professional Traders always has proper stock selection methods like this. Are they only selecting momentum stocks? No, momentum is one of the main factors for them to select good stock.

 

How to Identify the Momentum in a Stock?

 

 There are many Momentum-Indicators like Stochastics, MACD, RSI etc, by using those indicators properly you can identify the momentum. Precise entry is important in trading if you could identify the momentum properly you will get proper entry points which will be an advantage in your trading.

Among these which is the best indicator? The three indicators which I mentioned above are good especially for day trading and scalping, use them wisely according to your trading set-up.

 

How Professionals Using RSI?

 

Novice traders blindly trusting the indicators that so 90% of the retailers lose money in the market. Generally, we know that RSI level above 80 is an overbought zone and below 20 is an oversold zone.

 

When I started trading, I blindly trusted indicators, I was not aware of the methods of how Professional Trades using RSI. I used to buy the stock when the Stock is below 20 (oversold zone) and short the stock when RSI is above 80 (overbought zone). Sometimes it reverses from there but the majority of the time I got trapped in those zones.

 

Professional Traders using RSI differently

The momentum increases when RSI is above 60, the professional Traders tries to buy the stock which is above 60, if their strategy gives a buy signal they check the RSI signal if the RSI is above 60 the stock has good momentum to upwards, and they sell the stock according to the trading set up or when RSI reaches above 80.

 

When the RSI is below 40 momentum increases to the downside. If you get any shorting opportunity based on your trading strategy when the RSI is also below 40 you can short the stock confidently.

 

RSI 40 to 60 is sideways market, try to avoid those areas.