This week we focus on momentum and how to use it when trading.
Firstly we have to find the momentum shares. Momentum shares can be described as shares that are moving higher or lower in a trend.
Momentum shares can be found by analysing the various sectors in the market and choosing the strongest trending shares in those sectors with the strongest trends.
Secondly, you will need to know how to trade those shares. I suggest trade those shares with strong momentum on a shorter term basis. This is because these shares can sometimes be overvalued or undervalued. If you buy a momentum share, it does not mean you buy value, therefore, I suggest keep it as a short term trade and rather trade it more often or keep stop losses in place when trading this strategy.
The momentum trade can be a very profitable trade for short term traders and also very exciting. The political change in the country can also cause an increase in the momentum shares.
I have chosen Old Mutual as the momentum stock. This share has had strong upward momentum for the past few months and could be traded in and out a few times.
We look at value stocks and why we should also own value stocks.