Momentum investing vs noobs

K

konviction

I'm trying to learn about momentum investing, but from the many sites I've already been to, it seems to boil down to this:

Buy high..sell higher, and hope that there is no correction in the mean time.

I understand the concept, but finding any real solid strategy has prooven difficult. Further more, finding anyone that's known on wallstreet for this type of investing has been even harder.

I have a list of a lot of great looking stocks that have had great returns, but it this style flys in my face because it seems like I need to buy off crowds emotion rather than reason (tech analysis)

I'm looking for a new trading style because I've been very busy these past few weeks and I cant pay attention to the markets like I used to be. I'm looking to put money in high flyers, and I'd be willing to wait 6 months to a year for my investments.

Obviously some people have made great money with this style of investing, but my only concern is that by doing this, I'm no different than some noob buying xyz off impulse.
 
Quote from konviction:


Obviously some people have made great money with this style of investing, but my only concern is that by doing this, I'm no different than some noob buying xyz off impulse.
More...

I have personally never made money on a systematic basis buying into strength, nor have I been able to develop a system that does.

That's not to say that it isn't possible, or that others haven't done it consistently. (The key word here is consistently. Because for every trend and momentum trader who has made a few bucks by getting in a bull market at the right point, I'll wager there's 100 that have busted out over time.)

My point? Your frustration and lack of success in that area may be telling you something.
 
Richard Driehaus the Chicago money manager did not like the old stock market adage of buying low and selling high. According to him, "far more money is made buying high and selling at even higher prices.” He was the one they claim started momentum investing with that statement. But there are many others prior to him who used techniques similar to this.

I spent my first 20 years in the markets trying to use any fundamental, statistical or technical method I could get my hands on to try to do momentum investing. My results were never consistent. I failed at it. So I gave up on momentum investing and left that part of my money in mutual funds.

Then in these last 20 years with part of my funds I built my own technical trading solutions, adopted trading set up techniques, learned how to read markets technically and learned to use trade management methods. Using these methods I was able to throw out momentum investing and build tools to profit using swing trades, position trades and intermediate term trades. In the last 10 years I have gradually automated most of my set ups. Today most of my mutual funds have been sold (I kept a few like foreign bond funds…) and are now ETF’s that I trade over the intermediate term.

The main problem you are going to have tackling position and intermediate term trading is it is just not sexy enough for most traders. There is no immediate reward from these types of trades to keep the trading adrenaline going. So you will find very little interest in talking about it on most forums.

My first real position trade setup using pivot points I did about 16(?) years ago was using a weekly chart with linear regression channels. The set up still works today. Though its way too sloppy compared to my newer set ups.

Your one statement says it all. You buy off the crowd’s emotional short term bias or do you build a solid technical plan to trade based on risk/reward using good money management. So if you want to put in the time you can become a trader, otherwise you can settle for investor mediocrity.
 
Quote from konviction:

I'm trying to learn about momentum investing, but from the many sites I've already been to, it seems to boil down to this:

Buy high..sell higher, and hope that there is no correction in the mean time.

I understand the concept, but finding any real solid strategy has prooven difficult. Further more, finding anyone that's known on wallstreet for this type of investing has been even harder.

I have a list of a lot of great looking stocks that have had great returns, but it this style flys in my face because it seems like I need to buy off crowds emotion rather than reason (tech analysis)

I'm looking for a new trading style because I've been very busy these past few weeks and I cant pay attention to the markets like I used to be. I'm looking to put money in high flyers, and I'd be willing to wait 6 months to a year for my investments.

Obviously some people have made great money with this style of investing, but my only concern is that by doing this, I'm no different than some noob buying xyz off impulse.
More...
====================

Conviction Trader;
Finding it will not be the hard work;
study IBD books/website/free 10 day newspaper trial.
%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%

Also momentum is correctly defined as a ''price speedometer'';
nothing to do with direction, nor would i nickname/name IBD Can Slim as momentum trading/investing. But its real helpful.....

And make sure you borrow or buy book by Mr William O Neil[IBD founder , newspaper started up off his long/shorts stock sales!!!!!]];
book on Selling Stocks Short.[Note his wise use of 50 dma, 200day averages.....................] I could sell you my copy, but i like my copy too much.LOL.

And as far as ''hope there is no correction''my friend, forget that;
bull trends & bear trends always have corrections. Wisdom is profitble to direct......................................................
 
Articles like this one are well written and give an investor the feeling they can tackle any market at any time by only picking up on hot momentum securities and they are off to the races.

This type of article has one major flaw. They are all written with hindsight. They all tell you what happened but leave you clueless on how to take advantage of this phenomenon of “momentum investing” in the future.

In this article the author says “…Once the trend is established a share may benefit from a bandwagon effect…” This implies and assumes a hell of a lot. It tells you that you must master market dynamics to know when the markets are starting to trend, trending or when they are not.. Then you must find hot financial instruments that are beating this market trend and look to have “momentum”.

The article also states:...One possibility relates to timing…” This means you must have a solid entry point that makes sense based on the markets trend with a hot financial instrument. This momentum entry set up will then give you a fair chance at catching more momentum profits. But nowhere in this article and others do they give you a clue how to evaluate the reward you could expect or how much risk you should take on?

Then there is the case of momentum over with. If you don’t exit with a target and you go with momentum then when do you know momentum is over?

The answer to the above questions is too many of these articles fail to mention to you their approach to momentum investing is a really a form of buy and hold investing. Using this method you are really trading off a monthly chart and many of them expect you to be still “momentum investing” 8 years from now.

So the rhetoric is excellent in this article. But getting to the meat of how you can directly profit from momentum is written between the lines.


Quote from 5yrtrader:

Maybe its so common that no one talks about it. Imagine looking at balance sheets, P/E ratios, CEOs, comparing the competitors and then making a decision on the stock... I know somewhere along the way the investor will look at a chart to see which way the stock is going, everyone does it.

http://www.economist.com/node/17848665?story_id=17848665&CFID=162121840&CFTOKEN=27452215

I thought this was a good story.

5yr
More...
 
Another name for momentum trading is the bigger fool theory. Works in other areas as well, such as for buying and selling tulip bulbs in the Netherlands or houses in Las Vegas.
 
if you take a look at ULTA (daily), momentum investing(or trading, whichever) says to buy at these highs, in hopes it goes higher. Seems rather foolish to buy here. My 2 cents.
 
The trend seems steady and up. I suppose you could wait for a trend line break and get short.

<img src="http://www.elitetrader.com/vb/attachment.php?s=&postid=3154340">
 

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