What Is How to Use Momentum Screening to Find Winning Stocks?
Momentum investing targets stocks with established price trends, based on the empirical finding that stocks that have outperformed recently tend to continue outperforming for 3-12 months. Pure price momentum works, but combining it with fundamental momentum (rising earnings, margins, and guidance) produces superior risk-adjusted returns.
Why It Matters
The primary risk in momentum investing is buying at the peak of a trend just before reversal. Momentum crashes occur when high-momentum stocks experience sudden reversals, typically during market regime changes. Combining momentum with quality filters and regime awareness reduces this risk.
How LyraIQ Approaches This
LyraIQ's momentum screener evaluates both price momentum (12-month and 6-month returns) and fundamental momentum (earnings surprise, guidance revision, and margin expansion). The system only recommends momentum candidates when the market regime supports momentum strategies — avoiding momentum traps during volatility spikes or bear markets.
Practical Steps
- Screen for positive 12-month and 6-month price returns
- Add fundamental momentum: last 2 earnings beats vs. estimates
- Check for guidance upgrades in last 6 months
- Ensure momentum is not driven by unsustainable valuation expansion
- Confirm DSE momentum score > 70 and trend score > 65