Momentum investing is based on a simple principle: stocks that have been going up tend to keep going up, and stocks that have been going down tend to keep going down. Momentum stock screens help you identify stocks with strong price momentum so you can ride the trend for potential profits.
What is Momentum Screening?
Momentum screening filters stocks based on the strength and persistence of their price movements. Rather than looking at whether a stock is cheap or expensive, momentum screens focus on which stocks are moving the most and which direction they are heading. The goal is to find stocks with strong upward momentum before the trend exhausts itself.
The momentum principle: Stocks that have outperformed recently tend to continue outperforming in the short to medium term. This phenomenon has been documented across markets worldwide.
Key Momentum Indicators for Screening
1. Rate of Change (ROC)
ROC measures the percentage change in price over a specified period. A high positive ROC indicates strong upward momentum. Common timeframes include 10-day, 20-day, and 50-day ROC.
ROC Calculation
If a stock was $100 twenty days ago and is now $115:
- 20-day ROC = ((115 - 100) / 100) x 100 = 15%
A 15% ROC over 20 days indicates strong momentum.
2. Relative Strength (RS)
Relative strength compares a stock's performance to a benchmark like the S&P 500. Stocks with high relative strength are outperforming the market. Screen for stocks with RS ratings in the top 20% of all stocks.
3. Price Performance Percentiles
Many screeners let you filter by performance percentiles. For example, you can screen for stocks in the top 10% of 3-month performers across the entire market.
4. Moving Average Relationships
The distance between price and moving averages indicates momentum strength:
- Price well above 50-day SMA suggests strong upward momentum
- 20-day SMA above 50-day SMA above 200-day SMA indicates momentum alignment
- Widening gap between short and long-term MAs shows accelerating momentum
5. New Highs
Stocks making new 52-week highs are displaying strong momentum. Filtering for stocks at or near 52-week highs helps identify the strongest performers.
Building Effective Momentum Screens
Basic Momentum Screen
A simple screen to find stocks with strong recent performance:
- 1-month performance: Top 25% of all stocks
- 3-month performance: Positive
- Average daily volume: Above 500,000 shares
- Price: Above $10
Advanced Momentum Screen
A more refined approach for quality momentum stocks:
- 6-month performance: Top 10% of market
- 1-month performance: Top 30% of market
- Price above 50-day and 200-day SMA
- RSI between 50 and 80
- Volume 1.5x 50-day average
- Market cap above $1 billion
Dual Momentum Screen
This strategy combines absolute momentum (is the stock going up?) with relative momentum (is it outperforming?):
- 12-month return: Positive (absolute momentum)
- 12-month return vs S&P 500: Positive (relative momentum)
- 3-month return: Top 20% of universe
- Minimum volume and liquidity requirements
Momentum Screen Timeframes
Different timeframes capture different types of momentum:
Short-Term Momentum (1-4 weeks)
- Best for swing traders and active traders
- Higher turnover and more frequent trades
- More susceptible to reversals
- Requires quick entry and exit execution
Medium-Term Momentum (1-6 months)
- Sweet spot for most momentum strategies
- Balances trend persistence with timely signals
- Lower transaction costs than short-term
- Good for swing and position traders
Long-Term Momentum (6-12 months)
- Captures major trend moves
- Fewer false signals but slower entry
- Best for longer-term investors
- Often combined with fundamental factors
Volume Confirmation in Momentum Screens
Volume validates momentum signals. Strong price momentum should be accompanied by increasing volume:
- Rising price with rising volume: Strong bullish momentum, likely to continue
- Rising price with falling volume: Weakening momentum, potential reversal ahead
- Volume spike on breakout: Confirms the move, increases probability of continuation
Include volume criteria in your momentum screens:
- Current volume above 20-day or 50-day average
- Volume trending up over recent sessions
- Minimum daily volume for liquidity
Managing Momentum Positions
Momentum stocks require active management since momentum can shift quickly:
- Enter on confirmation: Wait for pullbacks or consolidation breakouts rather than chasing extended moves.
- Use trailing stops: Protect profits by moving stops up as the stock advances.
- Watch for momentum divergence: If price makes new highs but RSI does not, momentum may be fading.
- Sell when momentum stalls: Exit when your momentum criteria no longer apply.
- Rebalance regularly: Replace stocks losing momentum with new momentum leaders.
Common Momentum Trading Mistakes
Avoid these errors when trading momentum stocks:
- Buying too late: Entering after a stock has already made a huge move increases risk of reversal.
- Ignoring market conditions: Momentum strategies struggle in choppy, sideways markets.
- No exit plan: Momentum fades eventually. Have clear rules for when to sell.
- Overconcentration: Momentum stocks are volatile. Diversify across multiple positions.
- Fighting the trend: If momentum reverses, exit the position rather than hoping for recovery.
Track Your Momentum Trades
Pro Trader Dashboard helps you monitor momentum positions and analyze which setups work best. See your win rate and average gains on momentum trades.
Summary
Momentum stock screens help you find stocks with strong, persistent price movements. By filtering for high rate of change, relative strength, and volume confirmation, you can identify stocks likely to continue their trends. Remember that momentum is about timing. Enter with confirmation, manage positions actively, and exit when momentum fades.
Explore related strategies with our guides on growth stock screens or learn about technical stock screeners for additional trading ideas.