I Am Not A Momentum Trader

By: ispeculatornew
Date posted: 02.28.2012 (5:00 am) | Write a Comment  (2 Comments)

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In the past few weeks, I received 3 emails that from readers that were under the impression that I was trading on momentum. Why? My guess would be that:

-they received our newsletter where I discussed the top 50 trending stocks
-they also noticed that I often give trend analysis scores when looking at stocks

So yes, I understand where the thought process comes from but let me be clear, I am not a momentum trader, have never been and never will.

Am I Contradicting Myself?

Why would I even bring up trend information or moving averages? The top 50 trending stocks was honestly something I stumbled onto and thought was interesting but no, I would not trade on that basis. As for trend analysis scores? Basically, as I have said, I make my investment decisions primarily based on fundamental analysis. I look mostly at valuations compared to their earning power through P/E ratios, PEG, and other such metrics. That being said, I do still use trend analysis on a consistent basis and look at such information on pretty much every trade.

Am I Making Sense?

I believe there are thousands of different ways to make money while trading. The important is to find our own method, improve it and stick to it, not try to trade using dozens of different methods. Personally, I like to trade based on fundamentals, mainly P/E ratios. But I also try to avoid certain types of trades. One of those is going against strong momentum. I found out the hard way 2 years ago when shorting a few stocks such as Baidu (BIDU) which was exploding. A couple more such trades and I vowed to avoid such trades.

Momentum Traders

In my opinion, a momentum trader will look for trades that respect certain technical criterias. That is very different from someone who looks for fundamental trades, finds a few possibilities and then uses technical data to exclude a few. At least I think so.

Do you agree? Do you think I trade based on momentum? What about you? Do you use technical indicators?

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2 Comments

  1. Comment by Ole — March 14, 2012 @ 6:17 am

    The issue is not black or white – momentum or not. I start with a universe of top names that are generated by fundamental criteria by several others who do such analysis. Then I use technical analysis, including momentum related studies for trading/investing purposes.

  2. Comment by IS — March 14, 2012 @ 6:32 pm

    @Ole – Agree with you 100%, I feel like momentum/technical is an important complement, but not the reason for a trade to occur

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