Chapter 3
Defining the Basic Trading Styles
Once you’ve taken stock of yourself (no pun intended) and have a better understanding of what kinds of stocks you want to be in, the next step is to identify what trading style fits you the best. Each trading style has a unique set of characteristics that sets it apart from the others.
To make it easier to identify what kind of trader you are, let’s define the four main fundamental trading styles: Momentum, Aggressive Growth, Value, and Growth and Income. And there’s no need to worry if you don’t fit perfectly into just one style. Many people have parts of each style in them, including myself. But it’s still important to accurately identify what the different trading styles are and what stocks are best suited for each one.
Momentum Style
Momentum traders and investors look to take advantage of upward trends or downward trends in a stock’s price or earnings. We’ve all heard the old adage, “the trend is your friend.” And who doesn’t like riding a trend? Momentum style traders believe that these stocks will continue to head in the same direction because of the momentum that is already behind them. Momentum traders often fall into two categories, those who focus on price momentum screens and those who focus on earnings momentum screens.
Price Momentum
If you’re looking at a price momentum screen, you’re going to be looking at stocks that have been continuously going up, day after day, week after week, and maybe even several months in a row. ...
