Momentum Break Outs ...
One of the indicators I will be looking at in analyzing selections on this site, is momentum bands. As everyone knows, some of your more explosive returns come off stocks where momentum is rising and continues to rise. I'll be looking to capture 80% of a stock's price rise in a 20% time frame. Time is money and we'll be trying to determine if our money is being well spent.
If we were in the retail business, we wouldn't think about holding products that weren't moving. We would even take a loss on an item, just to get it out of the store, if it weren't profitable. We would be holding clearance sales to make room for items that would move and provide a good profit for our business.
This is the principle we'll be working with in our stock selections. We want stocks that will be profitable in the here and now, or in the very near future.
In order to monitor these types of stocks, we will be looking for momentum
One of the indicators I will be using to measure momentum, are Bollinger Bands with a twist.
Bollinger uses a 20 period time frame with 2 standard deviations. 90% of all price action occurs within those bands. One of the faults with this system is that buy and sell decisions are very subjective because those bands will expand or contract with price. They don't tell you when to buy or sell.
Here is a chart of the DOW with standard Bollinger Bands. Where do you buy and sell? There are a couple of times when price reached the upper band and then the band expanded. How do you know ahead of time that the band will expand or contract?
stockcharts.com[h,a]daclynay[pd20,2!f][iut]&pref=G
I'll be using bands with a 10,8 setting and when price is above the upper momentum band, you have momentum to the upside. You have a buy signal. When price drops below the lower momentum band, you have downside momentum. You have a sell signal.
With a setting of 10,8 on the bands, you will have "objective" buy and sell signals.
I will be using momentum bands with a 20 and 50 day simple moving average.
So, in this chart, the S&P 500 is below the momentum bands and below the 20 and 50 day moving averages. This is bearish and if this were a stock, we wouldn't take a long position until it can break above the momentum bands.
ttrader.com
Time is money! You want your money working for you in the now. If your stock isn't making money, you may want to hold a clearance sale and bring in some products that are more profitable for your business.
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