Momentum is a type of strategy where the stock continues to rise or is in a momentum to rise more from the current market price. For example, as an investor you will buy a stock which is rising because that stock can rise more and make new height. And you will sell that stock when it is on the top. We usually hear that the stock is doubled or became 10 times, so you have to catch that train using the momentum strategy.
This is becoming a widespread trading methodology where people are actually using it. The mindset behind using it is that sometimes the stock goes up and thus most of the people think that they have missed the train. But they actually don't know what is the top. So when the stock has been going up, it most probably will continue to go up. The only thing is that we have to find the top to get an exit.
The question is how to find a stock which are on momentum. I used the TradingView platform and add some filters along with the default ones.
The question is why these 2. We cannot find out the stock if it will be in momentum or not from the bottom. So the next best is to look if it crossed the 52 Week High along with that it has made new All Time High. That actually means that the stock is going up from quite some time and breaking previous High.
Now this will gives us a list of some stocks as you can see I have got 59 stocks which has broke both All Time High and 52 Week High. And then I have sorted them in order of their Market Cap.
PC: https://in.tradingview.com/screener/
So the screener gave me the stock list which I can use for my trading. But we will not be directly jumping in all the stocks. So let's go through one stock to find out if it's really in momentum.
Now for example if I open Bharti Airtel stock I can see that the price is going up continuously. But check one thing, there is no sell pressure as such. I am looking at the daily chart view on the daily closing. None of the recent red lines is more than the green lines. That means people are actually buying it more and more rather than selling it. This is the first parameter I check before jumping into the stock. Using this it is evident that the stock is favorite of people as of now and people are pumping money into it.
PC: https://in.tradingview.com
Next is to confirm my theory that is in the momentum. I check the 20 DMA and 50 DMA and check if the daily closing is above the Moving Average. In the below chart you can see that both the moving averages are actually less than the previous 5 days data. Along with that I check the RSI which is in the below of the chart and only those share which has the RSI above 50 will be taken into consideration. I has used ChartLink website for the below chart.
PC: https://chartink.com/stocks/bhartiartl.html
And then on Monday I will be taking a trade. I am not a short term trader, so I will take this share for the long term and will wait for at least 10% profit. My risk to reward ratio would be 1:2 and thus I will be keeping a strict stop loss of 5% down from the high price. Now the capital I will be deploying is 10% of my total portfolio that means if my stop loss will be hit I will lose only 0.5% of my portfolio.
The reward is actually 10% but I will not sell all my stocks at 10%. I will sell only the 50% of my portfolio and I will the stop loss so that I can get more reward from it. And this is how I find the stock which is in the momentum and thus try to take the trade in it.
