How to Find Stocks for Momentum Investing ?

Summary

Highlights

• Vivek Bajaj demystifies momentum investing, sharing his personal trading journey from passive to momentum strategies 📚.
• He uses Stockedge for identifying stocks with strong fundamentals and technical indicators 📊.
• Bajaj discusses constructing a market perspective from global to local levels before diving into sector-specific opportunities 🌎.
• A careful combination of fundamental and price action scans helps in the stock selection process ✅.
• He emphasizes the importance of understanding sector movements to align with potential stock gains 💼.
• Utilizing trading alerts for effective buy and sell decisions is recommended to capture market opportunities 🔔.
• Bajaj shares practical tips on managing risk with appropriate stop-loss levels and profit targets 📉.
• Understanding market dynamics through tools and strategic evaluation forms the crux of successful momentum investing 📌.

Key Takeaways

• Momentum investing is versatile and suits various market participants, regardless of time commitment 🎯.
• A proper market view from a macro to micro perspective is crucial for identifying momentum opportunities 🌍.
• Stockedge is a valuable tool for scanning stocks based on fundamental and technical strength 📈.
• Effective momentum investing involves understanding Newton's laws applied to market dynamics 🚀.
• Consistent screening and evaluation using a platform like Trading View is key to successful trading 📊.
• Risk management with stop-loss and profit targets is essential for momentum investing success ⚖️.
• Engaging with sector trends can enhance stock selection and confidence 💼.
• Analyzing both the global and local market scenarios can improve investing strategies 🌐.

Overview

Chapters

• 00:00 - 00:30: Introduction to Momentum Investing Introduction to Momentum Investing: The speaker begins by greeting the audience and introducing the topic of momentum investing. This is a subject that has been requested by many, and the speaker indicates that it has been taught in various formats, including Learn to Trade and Stock Exchange Club. The speaker emphasizes the importance of revisiting the concept of momentum investing, sharing personal insights and practices, and encourages the audience to engage with the method as well.
• 00:30 - 01:00: Benefits and Suitability of Momentum Investing Momentum investing is a versatile strategy that can be adapted to suit all types of market participants, regardless of their risk profiles, time availability, or capital base. Whether you have 2, 10, or 25 hours a week to devote to the markets, you can successfully incorporate momentum investing into your approach.
• 01:00 - 01:30: Personal Journey in Investing The chapter 'Personal Journey in Investing' details the narrator's shift in investment strategies, beginning in 2013. They decided against intraday and active trading, opting instead for passive trading. This choice led them to swing trading, and eventually to momentum investing, which they found to be the most engaging and rewarding. The narrator emphasizes their focus on momentum investing as their current investment target.
• 01:30 - 02:00: Value Investing vs Momentum Investing This chapter discusses the concepts of value investing and momentum investing. It highlights the importance of understanding both approaches to build substantial positions in stocks. Value investing involves doing thorough research to make significant profits, while momentum investing focuses on market trends. An understanding of the general market environment is also emphasized, with a perspective that considers a high-level overview.
• 02:00 - 02:30: Market Overview and Sector Analysis The chapter begins with a broad overview of the Indian market in the global context, examining opportunities for momentum in specific sectors. The speaker outlines a simple investment model focused on momentum investing, supported by screen sharing to enhance understanding. Key indices such as Nifty and the dollar index are discussed, providing insight into current market conditions.
• 02:30 - 03:00: Momentum Investing Strategy The chapter delves into the dynamics of the dollar index and its implications for global markets, particularly noting the current level at around 171. It elucidates the inverse relationship between the rising dollar index and market performance, emphasizing potential negative impacts on global indices such as Nifty. Additionally, the chapter touches upon the current state of the US 10-year yield curve, which appears to have established a base, leading to a subsequent recovery. This rebound in the yield curve is linked to the upward movement of the dollar index.
• 03:00 - 03:30: Price Action and Scan Techniques In the chapter 'Price Action and Scan Techniques', the discussion revolves around the influence of US interest rates on market commodities and stock indices. It is stated that when US interest rates increase, the dollar's value rises, leading to selling in commodities such as gold, silver, and copper, which experience slight corrections. The chapter also highlights the performance of the US stock market, specifically pointing out that the NASDAQ closed at 19,623 after recovering from the 200-day moving average. Additionally, the Dow Jones reached a high level, indicating positive market movement.
• 03:30 - 04:00: Stock Selection Criteria The equity markets remain robust, with a recent slight recovery of the dollar despite an overall downward trend. A decline in the dollar typically strengthens equity markets. As a result, indices like Nifty and other markets show resilience. Specifically, the mid-cap and small-cap sectors of the Bank Nifty displayed minor fluctuations recently.
• 04:00 - 04:30: Trading Tools and Platforms The chapter discusses the dynamics of the banking sector and the technology company's influence on the financial market. It emphasizes how banks are struggling, partly due to the negative impact of funding directed towards financial institutions like FD. Despite the banking sector's disappointments, the strength of IT sectors and companies like Reliance are providing significant support to the stock market index, Nifty. Overall, the chapter reflects on how different sectors are influencing market strength and investor confidence.
• 04:30 - 05:00: Risk Management and Stock Analysis The chapter discusses the role of Reliance and other stocks in supporting Nifty, and introduces the concept of momentum investing. It draws a parallel to Newton's theory of motion, suggesting that stocks, like objects in motion, will continue their trajectory unless acted upon by an opposing force. This principle is applied to momentum investing, where investors capitalize on existing market trends until external factors change the trend.
• 05:00 - 05:30: FIPA Strategy and Stock Evaluation The chapter discusses the significance of stock price trends in recent times, particularly over a period of one week to three months. It suggests that if a stock is showing strong price action and outperforming the market, it is likely to continue this trend in the future. The discussion emphasizes the importance of understanding the time frame in which the stock might continue to outperform, whether that be 2 days, 20 days, or even 200 days.
• 05:30 - 06:00: Sector and Stock Analysis In the chapter titled 'Sector and Stock Analysis,' the focus is on stock identification techniques. The discussion includes a practical example using the new version of Stockedge, a tool available on the web app, with plans for a mobile app version. Various types of stock analysis are mentioned, such as price action scans, volume delivery scans, technical scans, and fundamental scans. Additionally, features related to options, strike prices, and candlestick scans are explored.
• 06:00 - 06:30: Example Stocks and Risk Assessment The chapter titled 'Example Stocks and Risk Assessment' discusses the dynamics of stock price movements and risk assessment by examining short-term momentum and price actions such as daily, weekly, and monthly breakouts. It highlights that these short-term movements can yield substantial returns of 10%, 12%, or even 15% in stocks. Furthermore, when the assessment period extends from 20 days to 200 days, fundamental analysis becomes equally important. Therefore, stocks meeting criteria in both fundamental and price action scans are considered significant.
• 06:30 - 07:00: Sector Rotation and Conclusion The chapter introduces combinations made on the Stockedge platform, emphasizing its simplicity and effectiveness. The focus is on a specific FIPA combination that targets stocks achieving 52-week high marks. These stocks are further characterized by improving return on equity, return on capital, quarterly net profit, and quarterly EBITDA growth, with a notable rise in quarterly figures.

How to Find Stocks for Momentum Investing ? Transcription

• 00:00 - 00:30 Hello, good evening, Namaskar. Today we will discuss on an important topic, momentum investing. There are many people who have asked me in the comments to teach them. I have taught many times. I have taught in my Learn to Trade, I have taught in Stock Exchange Club. I keep teaching momentum investing everywhere. Because I teach what I practice. But I felt that today we should revise what is momentum investing and how do I do it. And I want you to do it too.
• 00:30 - 01:00 Believe me, when you start doing momentum investing on this path, you will start doing it on your own. The biggest advantage of this is that it suits all kinds of market participants. If you have 2 hours a week, you can do this. If you have 10 hours a week, you can do this. If you have 25 hours a week, you can do this. Different market participants with different risk profiles, different time availability to participate in the market, different capital base.
• 01:00 - 01:30 Momentum investing works for all kinds of people. I started this journey in 2013. In 2013, when I decided that I will not do intraday trading or active trading, I will do passive trading. So from passive trading, I took the journey of swing trading. And from there, the journey of momentum investing was the most interesting and rewarding journey. Now my target is that I am buying momentum investing. Now
• 01:30 - 02:00 at the same time, I should learn value investing too. How to build a big position in a stock. Because if you learn value investing, you can do a lot of work. You can make a lot of money. But momentum investing is doing a good job. I am teaching you. Learn it. Let's take the understanding of the market and momentum investing. By the way, the understanding of the market is also very important. I make the market view from 10,000 feet. I make the view of
• 02:00 - 02:30 the Indian market from 1,000 feet. I make the view of the global market from the Indian market. After that, I go 100 feet up and see where in the stock, in which sector, there are opportunities for momentum. And I participate in it. It is a very simple model. But if you follow it, it will be fun. So I do screen sharing. Let's get into the discussion of momentum investing. Before that, let's make a market view. This is Nifty. Nifty is sharp. And this is the dollar index.
• 02:30 - 03:00 The dollar index has slightly turned from here. The dollar index is running at about 171. Which is again, whenever the dollar index goes up, it can be bad for the global market. So it can be bad for Nifty. A little correction. Or you can say that there is a possibility of a slight break. This is the US yield curve, 10-year yield curve. It has made a base here and has given a recovery upward. That's why the dollar index has gone up.
• 03:00 - 03:30 And whenever the US interest rates go up, the dollar goes up. So there is selling in the commodities. So gold, silver, copper, there is a slight correction in all of these. If we talk about the US market on Friday, then the NASDAQ in the US market has closed at 19,623. That is the level that the NASDAQ has closed. It recovered from the 200-day moving average and went up to this level. And the Dow Jones has gone up to its high level.
• 03:30 - 04:00 The equity markets are still strong. The dollar has a slight recovery after the fall. But the broader trend of the dollar is still down. And if the trend goes down, then obviously the equity markets will be strong. That's why Nifty and all the other markets are strong. If we look at Nifty, then the bank Nifty has a small mid-cap and small-cap. I saw a slight tire in the mid-cap and small-cap on Friday.
• 04:00 - 04:30 But I think towards the end, they regained their strength. And the bank obviously has not been able to. The fire guns, as they say. The bank is disappointing in some ways. I think the overhang of the money going to FD is very negative for the banking sector. But apart from that, the other Nifty components like IT support Nifty well. And Reliance also had a good result.
• 04:30 - 05:00 Reliance and other stocks have been supporting Nifty well. Now let's talk about momentum investing. Newton said that if anything is put into motion by force, and as long as no opposite force comes and stops it, it will remain stationary for a short time. Newton gave this very beautiful theory. And this is the application of momentum investing.
• 05:00 - 05:30 If you see any price action in any stock in the last week to three months, and it is outperforming the market, then the chances are very high that it will outperform in the coming days. Now, in the coming days, I have raised this point, but it is also very important to understand this. Because how many days are there in the coming days? Whether we are talking about 2 days, 20 days, 200 days, or
• 05:30 - 06:00 2000 days, it all depends on how your stock identification technique should be. For example, I will give you an example using Stockedge. By the way, this is the new version of Stockedge. It is live on the web app. We are working on it a lot. And we will definitely do the app version live very soon. So you see, there are different types of price action scans, there are volume delivery scans, technical scans, fundamental scans, features and options, strike price wide options, candlestick scans.
• 06:00 - 06:30 But broadly, if you look at the short-term momentum, then in the price action scan, the small period, like previous day breakout, weekly breakout, monthly breakout, in all this, you can get a 10%, 12%, 15% movement in the stocks. But when we increase the period, from 20 days to 200 days, then the fundamental also has the same role as the price action. So the stocks that are getting satisfied in fundamental scans,
• 06:30 - 07:00 I also need that in my list. So I will show you some combinations that I have made in Stockedge. It is a very simple platform, a simple tool, and it works very well, very effective. So like I have made a combination, FIPA combination. Now what have I put in the FIPA combination? Tell me about those stocks that are 52-week high zone, in which return on equity is improving, return on capital is improving, quarterly net profit is improving, quarterly EBITDA growth is improving, high increase in quarterly
• 07:00 - 07:30 sales, and consistent cash form operation on an yearly basis. So this is a FIPA combination, from which you get those stocks, which have strength in them. Now if I go into it, I got all these stocks. These are all NSE stocks. If I want, I can scan it and limit it. Show me only major stocks, or just FNO stocks. But I also focus on NSE stocks and apply them. So I got all these FIPA stocks.
• 07:30 - 08:00 Now I will download it. These are fundamental-oriented stocks. And where there are fundamental-oriented stocks, we will have to increase the duration. I have to move to a weekly analysis. So let's put all these FIPA stocks in a FIBA combination. So let's go to trading view. I have made my combinations in trading view.
• 08:00 - 08:30 Let's get into the combination. This is a monthly and weekly combination. And this is a weekly and daily combination. So in stocks like FIPA, which are 52-week high, we will make a weekly and daily combination view. Because this is very good for medium term. For a view of 200 days to 220 days, these stocks are very good. So let's go to FIPA. I have made FIPA here. Let me remove it. This was a FIPA of major stocks.
• 08:30 - 09:00 But let's consider all our NSE stocks. So I will copy all these stocks here. We get so many stocks in a perfect match. Now my entire momentum investing journey, I am listing it here. I don't have to think beyond this. Because you will find some movement in these stocks. But you should have a conviction that the stocks in which I
• 09:00 - 09:30 am thinking of participating today, should have a fundamental theme. I don't want to blindly look at the price action or fundamental numbers. There should be a conviction of a more or less theme. So I will have to add these two stocks. ARE, Amaraja Factory, and Nippon.
• 09:30 - 10:00 Alright, let's add these two. So for next week, I will focus on these stocks only. And I will focus on those stocks which have strength in the weekly chart. And daily, from a money management perspective, which are at a good level. Let's take an example.
• 10:00 - 10:30 So 340 and now the price is closed at 400.
• 10:30 - 11:00 This risk reward of 20% is not favorable for us to work in the stock market. Because typically in medium term momentum, the stop loss should be 10-12%, take profit should be 25-30%. So this is not in our favor, so we will not think about it now. Plastic Blind India, yes this is very interesting.
• 11:00 - 11:30 In weekly chart, it gave a good breakout. So this is in our favor. In daily chart also, you can see it gave a breakout. RS league is positive for a long time. We will give a very good rate of this breakout, 330. So from 330 to 350, 10% of the movement has already happened. And my logical stop loss in this stock is previous swing
• 11:30 - 12:00 low, from 312 to 360, 15% stop loss. This is also on the higher side. So let's go to the next stock. By doing this, we have to see the chart of each stock. And if you become a FIPA trader, my entire trading universe is around FIPA, so typically, the stocks that are going to be in the future, you enter them at the right time. Like if you go in the opposite direction, this is the Hind
• 12:00 - 12:30 rectifier. Hind rectifier from a FIPA obstructory, it is good, it is good fundamentally, so here it gave a breakout on this line, and again it traced, which is very good news. Now from here, it is coming down. So ideally, the strong stock goes up and corrects a little. Goes up and corrects a little. Now you see, what is the character of this stock?
• 12:30 - 13:00 It went up from here, how much correction did it give here? It gave 7% correction. Now let's see again, it went from here to here, and how much correction did it give? It gave 9% correction. Now it has gone from here to here, so how much correction did it give already? Already it gave 7% correction. This means, there is a high chance, because it is a strong stock, that it will go around from here. So either, which company does it belong to?
• 13:00 - 13:30 Which sector does it belong to? Are we convinced by that sector? We should do a basic homework, because if we are not convinced by the sector, then we cannot enter that stock. Because if we are doing it for a long term, with a large quantity, then obviously, how can we enter that stock, whose sector or theme we are convinced by? But let's check it once, Hindstan Rectifier, what does the company do? So let's search for Hindstan Rectifier.
• 13:30 - 14:00 Now what does this company do? Let's go into its fundamentals. This is a capital goods company. Its price earning is around 90. Its industry PE is also 90. If we go to its website, sometimes we get a feel by looking at the website, what does the company do, what kind of products are there. It's always good to visit the website. We should check it. Electric and Magnesium Solutions for Aviation Sector.
• 14:00 - 14:30 So the Aviation Sector Group is a very good thing. So this will also benefit from it. Next, what else does the company do? Let's check its products. So there are transformers. I am looking at the basics. There are battery chargers, DC rectifiers, traction motors, switch boards, safety protection etc. So morally, whatever products you are seeing, it has been understood that the sector in which there is tailwind, this company belongs to
• 14:30 - 15:00 that sector. Because we know that there is tailwind in the airline, there is tailwind in the power sector, there is tailwind in EV, so obviously it will be beneficial. So now, thematically I know that the company belongs to this sector. So I will put this in the tracker. This should be in my green tracker because this is a risk-reward point. I can get this in a good zone. In fact, ideally, you know what you should do? Right-click here, the stock will not come exactly here, it
• 15:00 - 15:30 will reverse a little. So right-click here, and set an alert in the trading view. Whenever the stock comes close to it, I will get an alert from the trading view that the stock has come, and then I will enter the stock. Similarly, Voltas, Voltas has also run a lot, and its swing low, which will be my logical stop-loss, will be this. Because this was the previous swing low. Now if I see the movement of the stock from here to here,
• 15:30 - 16:00 then this stock has already moved 16%. So stop-loss is not in our favor. Sorry, I saw 16% with high. From here, it is 13%. So stop-loss is not in our favor. If it corrects a little more down, then this stock is in our favor. So I should do the same in this as well. This low and this high, typically what happens is the 50%
• 16:00 - 16:30 retracement of low and high, in this case, here is the 50%. So typically, this 50% retracement becomes a kind of support level. So you put an alert here. When the stock comes close to it, inform me. That's typical. It is not 100% sure. But typically, the level from low to high, the stock moves
• 16:30 - 17:00 with 50% retracement if it is a strong stock. So, now you see KPI tech. KPI tech is a strong stock. It has a breakout. It is near the breakout. Strong stock. You get support here. It has strength. Its previous swing was low. This is low. And now the price is moving. It is at 184. So it is 7% below the stop-loss.
• 17:00 - 17:30 This is very good. Because typically the strong stock does not go below the previous swing high. So this means that this level will be respected. It will be respected in the weekly chart. In the daily chart, it has made a false. But our stop-loss is based on RS. Our previous swing low is our stop-loss. Even if we had entered here, it would not have gone below the low. So even now the chances are less that it will go below the
• 17:30 - 18:00 low. In this case, it is this. If you look at the daily chart, the chances are less that it will go below the low. So if you look at the IT sector, how can you see the overall bullish? From a sector rotation perspective, you can evaluate the IT stock. Let's go to sectors. And let's find information technology. And let's look at the software.
• 18:00 - 18:30 Let's take a breath. It is strong. The entire IT sector software is very strong. This strength started from here. From 16th August. And after that, there is constant strength. On 16th August, there was a market cap of Rs. Now it is Rs. 43,00,000. In fact, on 16th August, there was a delivery. I highlighted on Twitter
• 18:30 - 19:00 Stock specific delivery. On 16th August, there was a very high delivery. On average, there is a delivery of 14-16. Since then, there is a rally in this sector. And as long as this strength is visible here, there will be a rally in this sector. So KPIT also belongs to that. So I will be less scared to buy this. Because here, the risk reward is also favorable. And the sector is also supporting it. So yes, KPIT should be in our position.
• 19:00 - 19:30 Indragust, Igarashi Motors. This is interesting. Let's draw a line from here. Nice breakout. And this stock is also getting corrected. This is very good. Its risk reward is in our favor. So which sector does it belong to? Most likely, it will be the automobile sector. So, Igar Motors.
• 19:30 - 20:00 Let's see. These are capital goods. It makes electric equipments. Let's see the website. So, in products, okay. Overall, industrialization, manufacturing, power, everything has a good momentum.
• 20:00 - 20:30 So, it's going to be correct. So, it's going to be correct. So, it's going to be correct. but momentum.
• 20:30 - 21:00 So, it's going to be correct.
• 21:00 - 21:30 So, it's going to be correct.
• 21:30 - 22:00 So, it's going to be correct. So, it's going to be correct. So, it's going to be correct. So, it's going to be correct. So, it's going to be correct. So, it's going to be correct. So, it's going to be correct. So, it's going to be correct. So, it's going to be correct. So, it's going to be correct. So, it's going to be correct. So, it's going to be correct.
• 22:00 - 22:30 So, it's going to be correct. So, it's going to be correct. Okay. but it's going to be but it's going to be So, it's going to be correct. So, it's going to be correct. So, it's going to be correct. So, it's going to be correct.
• 22:30 - 23:00 So, it's going to be correct. So, it's going to be correct. So, it's going to be correct. So, it's going to be correct. So, it's going to be correct. So, it's going to be correct. So, it's going to be correct. So, it's going to be correct. So, it's going to be correct.
• 23:00 - 23:30 So, it's going to be correct. So, it's going to be correct. So, it's going to be correct. So, it's going to be correct. All right. Have a great week. Next week. I'm going to go to Bombay again I'm going to go to Bombay again