Using the Momentum Portfolio

NOTE: The initial “Entry Price” in red is the closing price on the Friday prior to posting the portfolio. This IS NOT our entry price. When the stock is entered the “Entry Price” will be updated and changed to black.

We enter the stock using the following rules:

  • The first possible entry date is the Monday after posting the new portfolio.
  • We never enter a stock if it is going down. If it is negative on Monday, we will not enter on Monday, we enter on the first positive day.
  • Only enter the stock during the last hour of the trading day, IF POSITIVE, not in the morning. There are a few ways you can use this universe of stocks depending on the size of your account.
  • You can choose one, two or all the stocks for your trading. There is no way of telling which of these stocks will do well or stop out with a loss. They are all equally good in the beginning.
  • You can trade every stock in the portfolio as they are all quality momentum stocks. Buying all 20 stocks increases your chance of picking a “winner.”
  • You can make your portfolio equal weighted, which means investing the same amount of money in every stock Equal weighting is the method the research articles about momentum trading used. The “Equal Weight” column shows the number of shares to buy if investing one thousand dollars in each stock.
  • Preferably, you should use the concept of “r.” Review this article on position sizing.
  • The “Max Shares” column shows you the number of shares you would purchase for a $100,000 portfolio using a very conservative half percent risk and the stop loss I selected for you.
  • The next column shows you the amount of money those shares will cost. Remember, your total risk is only 0.5% of your portfolio, or $500 per trade, of a $100,000 account, regardless of the total amount invested.
  • When you purchase your shares immediately enter a trailing stop loss. Depending on your platform you enter the initial “Trailing Stop” or the “Trail Amount.” I have calculated both for you.
  • While the initial “Stop Loss” and “Trail Amount” will not change, the “Trailing Stop” will go up as the stock makes new highs. This means that when the stock eventually does stop out it will always be LESS than the initial $500 risk, and hopefully with a nice profit.
  • As the stock reaches our target levels, TP1, TP2, TP3, you could trim you position by 1/3 rd at each level, set a separate trailing stop for 1/3 rd of your position at each level, or let the entire position run.

In summary, the preferred method is to buy each stock in the portfolio using the recommended “Max Shares” adjusted for the size of your account. Immediately enter a stop loss and trailing stop as recommended. Over time most of the stocks WILL stop out, some with a loss, some with a profit. Some stocks will continue with a sizable profit. The portfolio should return an overall profit with a few stocks remaining by the time the next monthly portfolio is created.