• : July 18, 2021
  • : B. Krishnakumar
 
How to Identify Outperforming Momentum Stocks?
 
While the Nifty 50 index has done a whole lot of nothing in the past few months, much of the action is happening in the broader universe. Mid and small-cap stocks have been flying around and, in this context, I wanted to talk about a simple way to identify candidates which are outperforming and in strong momentum. Apart from outperformance and momentum, I am also looking for the candidates which are offering an entry opportunity with an affordable risk.

Here is the table capturing such stocks.



Here are the steps followed to generate the above list of candidates.

1. Run the Fusion Matrix with Nifty MidSmall400 index as the numerator and Nifty MidSmall400 index as denominator.
2. Run the Pattern Counter in 0.25% box size and 1% box size for the Nifty MidSmall400 index universe.
3. Merge these two files.
4. Sort the merged table on the Total RS Ranking Score column
5. Retain the top 100 candidates from this list.
6. This list of 100 stocks are the ones that are top performers based on Total RS Ranking score.
7. Sort this list in the descending order of Total Ranking Score Column. The idea here is to focus on the top candidates where the Total Ranking Score (based on the price Ranking Score plus RS Ranking Score) is the highest
8. Now we look at the Pattern Counter information and look at the ones where the Trend Ratio is healthy in the 0.25% box size and the “Pattern” is either bullish retracement or consolidation. This is to find stocks which offer fresh entry opportunities in the stocks.

The logic here is that MidSmall 400 Index is outperforming the Nifty 50 index. So, we start with the top outperformers from this universe by sorting the stocks in the Total RS Ranking score. Pattern Counter is used to get information about the trend and pattern in the last four columns. We are focusing on the high trend ratio so that there is momentum in price in the last four columns. We are avoiding Bullish Breakout pattern because we want stocks which can offer us entry.

The numbers and filters shared above is a broad guideline. Feel free to play around with any other logic. The Trend Score column in the above table is taken from the Pattern Counter scanner. The remaining columns are from the Fusion Matrix table.

This is a simple approach to identify fresh opportunities in the high momentum stocks outperforming stocks. You can choose to focus on the top few candidates from the above list. Hope you got a broad idea about the approach. As always, this need not be the final or the only approach. The idea is to give you a broad direction. Feel free to explore.

And, inspired by this post, if you manage to come up with a better or different approach, please share your logic with me. I will be happy to incorporate them appropriately in my approach.