Momentum trading with stocks is a powerful strategy that can be employed without the stress of sitting for many hours staring at a computer screen watching for every slight twitch in the market. It is useful for medium term stock trading, forms the foundation for successful swing trading, and opens up opportunities for excellent profits when using options trading strategies. The best part about momentum trading is that the need for extensive knowledge about technical indicators is not nearly as high as it is for swing trading or day trading. In fact, to be successful, it is best to stick with a few reliable indicators and build your strategy from that.

What are the best Momentum Technical Indicators for Stocks?

* Your eyes – you need to look at a chart to get a feel for how a stock is trending. A chart does not tell you everything, but you should be able to detect a pattern just by looking at the picture of how the stock is moving. All other indicators are statistical measures, and they only make sense when you can place them in a context.

* Moving averages. Two moving average lines which are set for different time periods can be powerful technical indicators. For example, simultaneously using a 10 day and 30 day exponential moving average (ema) lines can provide a robust picture of how the momentum of a particular stock is flowing. If the 10 ema line is above the 30 day line, then it means that for the last ten days, the stock has been trading at a higher price than for the last 30 days, on average. It is therefore in an upward trend. You can apply these lines to the general market (Dow Jones, NASDAQ etc.), or to a specific sector, or to your favourite stock.

* Wilder’s DMI or ADX is measure to show the strength of the momentum. If it is above 25, in either direction, you can be confident that the momentum is strong and is likely to hold.

* Relative Strength Index (RSI) and Volatility Index (VIX) are both indicators which show when a reversal in momentum is possibly imminent. Both show when the market in general is overbought or oversold, and the RSI is good for providing the same information about a particular stock.

How to use these technical indicators?

Once you have established that a trend is in place, or that a stock is trading with momentum in a particular direction, you can:

* buy a stock and hold it for the duration of the trend, or;
* trade the swings up and down within the trading band of the trend, or;
* use options trading strategies such as credit spreads to exploit leverage and get the maximum profit from a trend.

The power of using a few simple indicators to find and objectively measure a trend is that you can apply the information to several very profitable trading strategies. You not only have diversity in your stocks, but you can diversify your trading style, and reduce risk. Swing Trading Options provides free tutorials about how to use these technical indicators, and step by step instructions for each trading strategy.

Article Source: http://EzineArticles.com/?expert=Rob_Forbes