What is a 'Momo Play'

A momo play is a slang term used to represent a momentum play or opportunity. In a momo play, the trader is not interested in the company's fundamentals, but rather, the stock's short-term price movements. Momo plays are often used by day traders, swing traders, and position traders rather than buy-and-hold investors.

BREAKING DOWN 'Momo Play'

Momo plays were very popular during the 1990s and early-2000s before the advent of algorithmic trading. Traders would watch CNBC or Bloomberg News for breaking events that could lead to market volatility. If the stock started to move, they might quickly take a position based on the momentum and exit the trade shortly thereafter for a small profit. Algorithmic trading has made momo plays more difficult to capitalize on since computers are much faster at reacting to breaking news and placing trades within milliseconds.

There are many strategies that traders use to identify and capitalize on momo plays. Day traders may rely on only price and volume to gauge momentum, while swing and position traders may use more established momentum indicators.

Popular momentum indicators include: 

  • Relative Strength Index (RSI) - The RSI indicator compares the magnitude of recent gains to losses over a specified time period to measure the speed of change in price movements, or momentum.
  • Rate of Change (ROC) - The ROC indicator is the purest momentum indicator since it simply measures the percent change in price between two time periods.
  • Stochastics - Stochastic indicators compare the closing price to the high and low prices over a period of time, which provides an indication of momentum and volatility.

Momentum trading is riskier than most other strategies since it attempts to capitalize on market volatility. Traders seek to enter a trade in the direction of the prevailing trend when momentum is rising and exit the trade when momentum begins to fall. In addition, traders interested in momo plays usually use stop-loss orders and other risk management techniques to limit their downside risk.

Example of a Momo Play

A trader may identify a momo play by looking at companies with upcoming earnings announcements before the opening bell. After looking at earnings announcements, the trader may find a company that reported better than expected results with a price that's surging in pre-market trading. The trader will then look for potential areas of support and resistance, based on past price movements, and set take-profit, and stop-loss points. These points may be adjusted after the open depending on the stock's upward momentum.

RELATED TERMS
  1. Earnings Momentum

    Earnings momentum occurs when corporate earnings per share (EPS) ...
  2. Price Rate Of Change - ROC

    A technical indicator that measures the percentage change between ...
  3. Rate Of Change - ROC

    The rate of change - ROC - is the speed at which a variable changes ...
  4. News Trader

    A news trader is a trader or investor who makes decisions based ...
  5. Swing Low

    Swing low is a term used in technical analysis that refers to ...
  6. Commodity Trader

    A commodity trader focuses on investing in physical substances ...
Related Articles
  1. Trading

    Why Shares of China's Momo Are on a Tear

    Strong fundamentals and institutional buying are sending shares of China's Momo higher.
  2. Trading

    Can These Momentum Stocks Break Out One More Time?

    Here are some levels to watch for another breakout in these high-momentum stocks.
  3. Trading

    The 5-Minute Trading Strategy

    Learn this simple momentum strategy and its profit-protecting exit rules.
  4. Investing

    How To Approach Momentum Trading Like A Pro

    Momentum markets generate high-reward high-risk environments that confound traders until they employ specific risk management practices.
  5. Investing

    5 Overlooked Techs That Are Beating the Market

    As big tech stocks struggle to continue momentum, smaller tech companies have found their wings.
  6. Trading

    Alibaba Stock Looks to Break Out From Key Support

    Alibaba shares moved sharply higher on Tuesday to key resistance levels, setting the stage for a potential breakout.
  7. Trading

    Risk management techniques for active traders

    Learn how active traders manage risk through the use of stop-loss and take-profit points.
  8. Investing

    Momentum and the Relative Strength Index

    These two indicators can give the trader a better understanding of when to get in and out of an issue.
  9. Trading

    Are You a Trend Trader or a Swing Trader?

    Swing traders and trend traders execute market timing strategies that require different skill sets.
RELATED FAQS
  1. What technical tools can I use to measure momentum?

    One of the main goals of every trader using technical analysis is to measure the strength of an asset's momentum and the ... Read Answer >>
  2. Is volatility a good thing or a bad thing from the investor's point of view, and ...

    Learn the basics of volatility in the stock market and how the increased risk provides greater opportunities for profit for ... Read Answer >>
  3. What are the best technical indicators that complement the Relative Strength Index ...

    Learn some of the best additional technical indicators that can be used along with the relative strength index to anticipate ... Read Answer >>
  4. What are the best indicators to identify overbought and oversold stocks?

    The relative strength index (RSI) and stochastics are two of the most popular indicators of overbought or oversold conditions ... Read Answer >>
  5. What's the difference between relative strength index (RSI) and stochastic oscillator?

    Learn about some of the main differences between the relative strength index and the stochastic oscillator, two well-known ... Read Answer >>
Hot Definitions
  1. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  2. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  3. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  4. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  5. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
  6. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
Trading Center