Introduction
Momentum investing is often misunderstood as simply buying stocks that are going up.
My approach is different.
I do not try to predict which sector or stock will perform best several months from now. Instead, I look for existing strength, wait for a correction, and then participate when the trend begins to resume.
The philosophy can be summarised in one sentence:
Follow strength, wait for weakness within that strength, and enter only when the market confirms the reversal.
This approach combines sector momentum, technical analysis, fundamental screening, multi-timeframe analysis, pullback entries, small initial positions and disciplined exits.
The objective is not to predict every market move. It is to participate when the probability is favourable while keeping the cost of being wrong small.
1. Start With the Sector, Not the Stock
My first question is not:
"Which stock should I buy?"
It is:
"Which sectors are demonstrating leadership?"
I use sector ETFs as a practical way to identify where market momentum is concentrated.
I continuously monitor sectors such as defence, capital markets, metals, auto, realty, MNC, PSU, pharma, IT, consumption and others.
Sector leadership can change quickly. In a difficult or range-bound market, rotation can happen within weeks—or even faster.
Therefore, I don't become emotionally attached to a sector.
If capital starts moving from one sector to another, I am willing to move with it.
This is an important distinction:
I don't predict sector rotation. I react to it.
2. A Choppy Market Requires a Different Approach
When the broader market is strongly trending, it is relatively easy to remain invested.
The difficult environment is when:
the index is range-bound,
sector leadership is narrow,
breakouts frequently fail,
volatility changes quickly,
and one week's leader becomes the next week's laggard.
In such conditions, my priority changes from maximising returns to protecting capital while remaining ready for the next trend.
This is why I use sector ETFs extensively during uncertain conditions.
They allow me to participate in sector momentum without immediately taking concentrated individual-stock risk.
3. My Technical Screening Process
Once I identify a strong sector, I look for the leading stocks within that sector.
Technical analysis is my first filter.
I look at several things:
Higher-timeframe trend
Moving-average structure
Relative strength
ADX
MACD
RSI
Breakouts
Pullbacks
Support and resistance
Price extension from moving averages
Volume and price behaviour
But I don't treat these indicators as six independent votes.
Most of them are derived from price, so I use them as different ways of understanding the same underlying question:
Is the trend healthy, and is momentum returning?
4. Higher Timeframe Comes First
This is one of the most important principles in my strategy.
I don't begin with the short-term chart.
I first determine the higher-timeframe trend.
If the higher timeframe is clearly bullish, I am interested in buying corrections.
If the higher timeframe is bearish, I am much more cautious about treating short-term rallies as buying opportunities.
This is closely related to the Triple Screen concept popularised by Dr. Alexander Elder.
The basic philosophy is:
Use the larger timeframe to establish direction, the intermediate timeframe to identify the correction, and the shorter timeframe to find the entry.
That framework fits my trading style very naturally.
5. I Prefer Pullbacks Over Chasing Breakouts
One of the clearest characteristics of my trading style is that I prefer pullback entries.
Suppose a stock is in a strong uptrend.
It breaks out and moves rapidly upward.
I don't necessarily want to chase it.
Instead, I wait.
The stock may correct toward:
a moving average,
previous breakout support,
a previous swing level,
or another meaningful technical support area.
The correction gives me two advantages:
Better entry price
I don't have to pay the most expensive price during the momentum surge.
Smaller logical risk
If the correction establishes a clear support level, I can define my invalidation relatively close to the entry.
Therefore:
I would rather buy a controlled correction in a strong trend than chase an extended move.
6. Not Every Pullback Is a Buying Opportunity
This distinction is crucial.
A correction can mean two very different things.
Healthy correction
The primary trend remains intact.
Price pulls back toward support.
Selling momentum decreases.
The stock begins forming a bottom.
Momentum indicators start turning.
The previous trend begins to reassert itself.
Dangerous correction
The supposed pullback is actually the beginning of a trend reversal.
Support keeps failing.
Lower highs and lower lows develop.
Momentum deteriorates.
The higher-timeframe structure weakens.
In that situation, buying simply because the stock has fallen 10–15% is dangerous.
Therefore, I don't buy the fall.
I buy the confirmed resumption of the trend.
7. My Reversal Confirmation
Once a pullback appears to be forming a bottom, I start looking for evidence of reversal.
MACD and RSI are important references for me.
For example, I look for:
MACD line crossing the signal line bullishly
MACD momentum beginning to turn positive
RSI turning upward
price holding the relevant support
formation of a higher low
eventual break of nearby resistance
I don't interpret a single indicator as a trade signal.
The idea is confluence.
The strongest setup is when price structure and momentum are telling the same story.
8. MACD: I Want the Correction to Lose Momentum
MACD is particularly useful to me during the pullback.
A bullish crossover tells me that bearish momentum may be weakening.
The important point is that I don't simply say:
"MACD crossed, therefore buy."
I ask:
Where did the crossover happen, what is the higher-timeframe trend, and what is price doing around support?
A MACD crossover at an important bottom inside a larger uptrend is much more interesting than the same crossover occurring in a weak stock below major resistance.
9. RSI: Momentum Context, Not a Mechanical Signal
I also use RSI to understand momentum.
I don't use RSI simply as:
RSI below 30 = buy.
That is too simplistic.
A strong stock can remain overbought for a long time.
Likewise, a weak stock can remain oversold while continuing to fall.
I am more interested in:
whether RSI is turning upward,
whether momentum is recovering,
whether it is reclaiming important levels,
and whether that recovery is consistent with the higher-timeframe trend.
10. Resistance Is My Final Gatekeeper
Suppose the pullback has formed a bottom.
MACD is improving.
RSI is turning up.
Support is holding.
But there is significant resistance immediately above the price.
I don't necessarily enter immediately.
I wait for the resistance to be crossed.
This is an important part of my process because I want the market to demonstrate that buyers are actually taking control.
My ideal setup is therefore:
Higher-timeframe uptrend
↓
Controlled correction
↓
Support holds
↓
Bottom formation
↓
MACD/RSI improve
↓
Higher low develops
↓
Resistance breaks
↓
Entry
This prevents me from trying to predict the exact bottom.
11. I Don't Need to Catch the Exact Bottom
This is an important psychological principle.
The goal is not:
Buy the lowest possible price.
The goal is:
Buy early enough in the renewed trend while having a clearly defined invalidation level.
If the actual bottom is ₹950 and I enter at ₹970 after confirmation, I haven't made a mistake.
I have paid ₹20 for confirmation.
That is often a worthwhile trade-off.
Trying to buy exactly at ₹950 introduces a different problem: prediction risk.
I prefer confirmation over prediction.
12. Fundamental Screening Comes Before a Full Stock Position
Once the technical setup identifies a promising stock, I don't automatically buy it.
The stock must also pass my fundamental screening.
I look at factors such as:
consistent sales growth
consistent profit growth
profitability quality
debt levels
market capitalisation
promoter holding
institutional holding changes
valuation
PE expansion
earnings growth
whether PE expansion is justified by earnings growth
balance-sheet quality
growth sustainability
and several other company-specific factors
The fundamental analysis answers a different question from the technical analysis.
Technical analysis asks:
"Is the market showing evidence that this stock is becoming attractive now?"
Fundamental analysis asks:
"Is this a company I actually want to own if the market continues rewarding it?"
I want both answers to be positive.
13. I Don't Chase PE Expansion
One of my important filters is the relationship between valuation and earnings growth.
A stock can rise because:
Earnings are growing.
The valuation multiple is expanding.
Both are happening.
The third situation can be excellent.
But I am cautious when most of the price appreciation comes from multiple expansion without comparable earnings growth.
For example, if earnings are growing 20–25% while valuation is expanding moderately, that is much more comfortable than a stock whose PE has doubled while earnings have barely changed.
I want valuation expansion to have fundamental justification.
14. Quality Matters Even in Momentum Investing
Momentum does not mean ignoring fundamentals.
My ideal candidate is:
A fundamentally strong company in a sector that is gaining strength, with a stock price that is technically setting up for another move.
This combination is powerful because I am not merely buying price momentum.
I am looking for:
Sector strength
Stock momentum
Fundamental quality
Attractive technical entry
That creates a much stronger candidate than any one factor alone.
15. Token Positions: My First Commitment Is Small
This is one of the most important parts of my risk management.
When I identify an attractive stock, I don't necessarily take the full position immediately.
I take a token position.
The purpose of the token position is not necessarily to make money immediately.
Its purpose is to obtain information.
I am essentially saying:
"I have a thesis, but I want the market to confirm it before I commit significant capital."
If the stock behaves as expected, I can increase the position.
If the setup fails, the initial loss is small.
This creates an asymmetric process:
Small before confirmation
→
larger after confirmation
rather than putting maximum capital into an unconfirmed idea.
16. I Think of the Initial Loss as the Cost of Information
A small initial loss isn't necessarily a failure.
If I take a token position and the setup fails, I have learned:
The market is not confirming my thesis.
That information has a cost.
But because the initial position was small, the cost is controlled.
The dangerous behaviour is not taking a small loss.
The dangerous behaviour is taking a small loss and then saying:
"But the fundamentals are good, so I'll wait."
That turns a tactical position into an accidental investment.
My technical invalidation remains important even when the fundamental story is attractive.
17. Position Size Should Adapt to the Stock
This is where I deliberately avoid rigid rules.
Every stock has different characteristics.
Some stocks:
move rapidly,
respect the 20-day moving average,
have shallow corrections,
and recover quickly.
Others:
move more slowly,
respect the 50-day moving average,
experience deeper pullbacks,
and take longer to resume the trend.
Therefore, I don't believe one rigid technical parameter should be imposed on every stock.
Instead:
The principles remain fixed; the parameters adapt to the stock's behaviour.
That is structured discretion.
18. My Stop Is Based on Structure, Not an Arbitrary Percentage
I don't want to say:
"Every stock gets a 7% stop."
That ignores the stock's volatility and structure.
Instead, I look for the technical level that would invalidate the trade.
For example:
If the stock repeatedly holds a particular support and then breaks it decisively, that can invalidate the setup.
A volatile stock may require a wider structural stop.
A less volatile stock may allow a tighter stop.
The solution is not to give both stocks the same stop.
The solution is:
Adjust position size to compensate for the difference in risk.
A wider stop should generally mean a smaller position.
A tighter stop can permit a larger position.
This keeps the risk per trade controlled without forcing every stock into identical parameters.
19. My Exit Is Different From My Entry
My entry asks:
"Is the trend resuming?"
My exit asks:
"Is the original thesis still valid?"
If the stock breaks the support structure that defined the trade, I am prepared to exit.
I don't want to continuously reinterpret the chart to justify staying in a losing position.
The market gets the final vote.
20. I Prefer Structural Exits to Emotional Exits
A common mistake is:
"I am down 8%, so I should sell."
Another is:
"I am down 8%, but the company is excellent, so I'll hold."
Neither is necessarily correct.
My preference is:
Has the structure that justified the trade been invalidated?
If yes, exit.
If no, the position can remain valid despite temporary volatility.
This is particularly important for stocks with different volatility characteristics.
21. Sector Rotation Means I Must Be Willing to Change My Mind
Momentum investing requires intellectual flexibility.
A sector can be the strongest sector today and a laggard a few weeks later.
Therefore, I don't treat sector selection as a permanent opinion.
If another sector begins demonstrating stronger relative momentum, capital can migrate.
This means:
The portfolio follows strength rather than loyalty.
That is one of the fundamental principles of my approach.
22. I Don't Confuse a Winner With a Permanent Holding
A successful momentum position can become psychologically dangerous.
For example, a position may become a large percentage of the portfolio simply because it has appreciated substantially.
That creates a temptation:
"This is my best stock, so I should keep adding."
I try to separate:
profitability
from
current trend quality.
A winning position deserves to remain large only while its underlying setup remains valid.
The system—not the profit percentage—should determine the decision.
23. The Current Market Requires Adaptability
In a strong bull market, momentum strategies can allow positions to run.
In a choppy market, the same strategy can suffer from repeated false breakouts.
Therefore, I adapt my behaviour according to the market regime.
Strong trending market
I can:
hold longer,
increase positions after confirmation,
transition toward leading individual stocks,
allow winners more room.
Choppy or uncertain market
I prefer:
sector ETFs,
smaller positions,
quicker rotation,
pullback entries,
strict structural exits,
capital preservation.
The objective isn't to use the same tactic in every market.
The objective is to use the tactic appropriate to the regime.
24. My Long-Term Transition: From Sector Momentum to Growth Leaders
My tactical ETF strategy is not necessarily the final destination.
When the broader market improves and a sustained trend develops, I intend to move toward high-growth, fundamentally strong companies.
The transition would look something like:
Market stabilisation
↓
Sector leadership becomes persistent
↓
Leading stocks emerge
↓
Fundamental quality confirmed
↓
Small token positions
↓
Pullback entries
↓
Confirmation
↓
Increase exposure to the strongest companies
This allows me to start defensively and become more concentrated only when the market provides evidence that conditions have improved.
25. My "Token Position" Is Also a Bridge Between Technical and Fundamental Investing
This is where the two disciplines come together.
Suppose a stock has:
excellent fundamentals,
strong sector leadership,
good relative strength,
and an attractive pullback.
I don't need to immediately commit the entire intended allocation.
I can establish a small position.
Then the market tells me whether the technical thesis is working.
If the stock breaks the expected resistance and continues higher, I can increase.
If it fails, I lose relatively little.
This creates a feedback loop:
Fundamental thesis → technical setup → small position → market confirmation → larger position.
26. What I Am Really Trying to Capture
Ultimately, I am looking for a specific combination:
Strong sector
The industry is attracting capital.
Strong company
The company has earnings and balance-sheet characteristics worth owning.
Strong stock
The market is rewarding the company.
Healthy correction
The stock is not excessively extended.
Reversal
Selling pressure is weakening.
Confirmation
Resistance breaks and the trend resumes.
Controlled risk
The invalidation level is close enough to make the trade attractive.
When all of these align, the setup becomes compelling.
27. The Core Philosophy
My strategy can therefore be reduced to a few principles:
Follow the trend, don't predict it.
Prefer strong sectors over weak sectors.
Prefer strong companies within strong sectors.
Don't chase extended prices.
Wait for corrections.
Let the correction form a bottom.
Use momentum confirmation to identify the reversal.
Use resistance to confirm that buyers are taking control.
Start with a small position.
Add only when the market confirms the thesis.
Define invalidation structurally.
Accept small losses rather than defend broken setups.
Let winners grow while the trend remains intact.
Rotate when leadership changes.
Increase fundamental-stock exposure when the broader market enters a healthier trend regime.
Conclusion
The essence of this approach is not any single indicator.
It is the sequence of decisions.
I don't attempt to know the future.
I begin with what the market is already telling me:
Which sectors are strong?
Then:
Which stocks are leading those sectors?
Then:
Which of those companies have strong fundamentals?
Then:
Which stocks are correcting rather than becoming fundamentally or technically broken?
Then:
Has the reversal actually started?
Then:
Has resistance been cleared?
Only then do I commit meaningful capital.
And even then, I don't have to be right immediately.
I can start with a token position, observe the market's response, and increase exposure if the thesis is confirmed.
That is the core philosophy:
Don't predict. Prepare. Wait. Confirm. Participate. Protect capital. Rotate when the evidence changes.
The goal isn't to capture every move.
The goal is to capture the high-quality portion of a trend while keeping the cost of being wrong small.
That is what makes the strategy sustainable.
.webp)
0 Comments