Momentum Strategy: Systematically Identify Stocks Using Trend Strength

The momentum strategy is one of the most well-known approaches in active trading and investing. The basic idea is simple: stocks that have already shown strong price development in the recent past may continue this movement. This strategy is based on the observation that existing trends often continue for a certain period before they reverse. But how can momentum be systematically identified and used for investment decisions?

What is Momentum Trading?

In momentum trading, assets are evaluated based on the strength of current price trends. The concept of "momentum" describes the speed and direction of a security's price movement. Traders and investors who apply this strategy focus on investing in assets that have already shown a pronounced price development – with the expectation that this movement will continue. The strategy can be applied to both rising and falling prices: securities in a strong uptrend can be bought, while with pronounced downtrends, short positions can be considered accordingly. The central mechanism behind this is market behavior: when a stock climbs from one high to the next, more and more market participants become aware of this security – the price movement intensifies.

Core Elements of the Momentum Strategy

Implementing a momentum strategy is complex and based on several factors. Volume and volatility play a central role. Rising trading volume combined with a price movement indicates stronger momentum. Moderate to high volatility creates opportunities for entry during temporary price declines and enables profits with timely exits at higher prices. The time frame is another important aspect. Momentum strategies can be applied short-term in day trading or medium-term over weeks and months. With longer-term momentum approaches, for example, which stocks have shown the strongest performance in the past 3 to 12 months is examined. The calculation of momentum typically occurs through comparing the current closing price with the price from a specific number of previous periods. Trend continuation and trend reversal are two patterns that can occur in momentum behavior. While momentum often indicates a continuation of the existing trend, under certain circumstances it can also signal an impending trend reversal. Making this distinction is one of the challenging aspects of this strategy.

Challenges in Identifying Momentum Stocks

The practical implementation of a momentum strategy presents investors with several challenges. First, from thousands of stocks, those that currently show strong momentum must be identified. This requires analyzing price movements over different time periods, evaluating trading volume, and monitoring technical indicators. Another critical aspect is timing: the right entry point is crucial, as with already advanced trends, the risk of an imminent reversal increases. Equally important is defining clear exit criteria. Without structured risk management and predefined stop-loss levels, emotionally driven decisions can lead to losses. Manually scanning markets for stocks with specific momentum characteristics – such as a price increase of more than 20% in the last three months with simultaneously rising volume – is time-consuming and requires continuous market observation.

ScreenerHub.app: Efficiently Identify Momentum Opportunities

Modern stock screening tools make it possible to systematically apply momentum criteria. With targeted filters, stocks can be identified that, for example, have achieved a certain percentage price increase in the past 3, 6, or 12 months. Additional filters for trading volume, relative strength, or volatility can further refine the selection. Screening platforms also offer the ability to incorporate technical indicators such as moving averages. These indicators help confirm trend strength and identify potential entry points. A systematic approach reduces emotional decisions and enables momentum opportunities to be compared across different markets and sectors.

ScreenerHub.app was developed to simplify the systematic search for momentum stocks. The platform offers filter functions with which securities can be screened by price performance over different time periods, trading volume, and other relevant metrics. Investors have the opportunity to individually customize their own search criteria and track different momentum approaches – from short-term breakouts to longer-term trend continuations. The clear presentation enables a quick comparison of potential momentum stocks and supports the individual preparation of informed decisions. Instead of manually analyzing charts and researching metrics individually, stocks that currently show strong momentum can be identified with ScreenerHub.app in a few minutes.

Risk Management in Momentum Strategies

Structured risk management is particularly important with momentum strategies. The definition of stop-loss levels helps limit losses when the trend unexpectedly reverses. At the same time, setting profit targets or trailing stops can help secure realized gains. A clear trading plan that defines entry and exit criteria as well as position sizes can help reduce emotional reactions to market fluctuations. Diversification across multiple momentum stocks can further spread risk. Regular review and adjustment of the strategy based on changing market conditions is also important. ScreenerHub.app offers professional screening functions for everyone who wants to engage with momentum strategies – systematic, data-driven, and clearly presented.

This article was written based on publicly available information about momentum trading strategies and technical analysis.

Risk Disclaimer: Investments in securities involve significant risks and can lead to total loss of invested capital. Momentum strategies can be particularly volatile and require active risk management. Past performance is no guarantee of future results. The information in this article does not replace individual investment advice from qualified professionals.