A high momentum stock exhibits strong directional movement and maintains enough trading activity to sustain its trajectory. This sustained movement is powered by trading intensity, which we measure by the number of trades executed per second.
There are many reasons why trading is challenging. This challenge stems from both human nature and the fundamental characteristics of trading itself.
Fact: On the very short term, most price movements are random.
Fact: The human brain is wired to detect patterns.
Do you see the contradiction? While we’re naturally inclined to find patterns, most price movements are random. This mismatch leads us to perceive patterns in price movements where none actually exist. This cognitive bias can persist for years, potentially leading to significant financial losses.
However, momentum strategies offer one way to navigate through market randomness: when a security experiences very high activity (momentum), it can create a directional bias in price movement.
The U.S. stock market is particularly well-suited for momentum strategies. With thousands of securities trading simultaneously, extremely skewed environments frequently occur. These situations can result in stocks moving 10%, 20%, 50%, or even more in a single trading day.
To capitalize on these high-momentum events, traders need reliable detection tools. This is where MomentumDetector comes in: a specialized stock scanner that continuously monitors every security in the U.S. stock market to identify these momentum events. Start your free tiral now.