The most simple way to state trend/momentum trading is to buy a stock when both its price and the general market is in an up trend.
I'm only a novice, and have just started looking into trend/momentum trading. Some things I have come across:
MACD - MACD above signal line, on an upward trend, especially once it has crossed over zero. I use standard MACD settings on a weekly chart.
RSI (relative strength index).
Stochastic Oscillator - good for timing entries and exits, wait for pull-back for a buy. Also note that on a weekly chart, the stochastic oscillator can remain in the "overbought" range above 70 for months while the stock price keeps running up while buyers keep jumping on the bull run.
It can also be useful to view a daily price chart with the above indicators, but with their parameters adjusted so they use weekly rather than daily data - this displays nice smooth trends. For example, on the daily price chart, plot the MACD with the values (long 130, short 60, signal 45).
Moving Averages. I use simple moving averages (because I am a simple man). I look for golden cross (10 week above 40 week) as a bullish signal. You can use multiple moving averages (Guppy MMA or variations such as Alan Hull's Actvest MMA).
There are quite a few well respected momentum trading systems; such as Alan Hull's ActVest and Colin Nicholson. Stan Weinstein's "Secrets For Profiting in Bull and Bear Markets" also outlines a basic momentum trading strategy.
Basically, the above are all just statistical tools to help identify the price trend. If you read tech/a's thread on technical analysis the market is always in one of four phases, down-trend, accumulation, up-trend, distribution. Get in on the up trend and use a trailing stop loss system to get out at the beginning of the down trend. Use discretion to take profits, reduce exposure as you hit your targets or to close a position to take advantage of a better opportunity elsewhere.
I read something in a link posted on this forum the other day about the investor that just wants the middle of the fish - others can have the tail and the head. That is very much my thinking these days. I won't pick the bottom and I won't pick the top but the middle will do me just fine.
Grab your short list of fundamentally sound companies with IVs you believe to be well above the market price. A lot of the stock prices will be in down trend or in an accumulation phase without any sign of recovery or worst still, may look as though they might just be about to turn around (because you know that if the market was rational the price would be going up right?). Identify any on that list that are are showing bullish signs. If the MACD has already run up well over zero, if the RSI and the Stochastic oscillator are already into overbought you may have missed out on most of the current bull run. If the short term MAs are well above the long term MAs (example 10week MA above 30 week MA) and you believe based on fundamentals the stock price has not yet reached its true value then you can still hop on by buying the dip and put your stop-losses in place. I though, would rather wait for another opportunity to arise where I could hop on earlier.
I do have some stocks that are income stocks that I don't look at the price of. I'm very happy with the price I paid and the yield they are achieving. For all my other growth stocks, given that more likely than not the market is going to remain sideways for some time as just as likely to experience a major break out to the down side as the upside into the foreseeable future, I'll be using fundamental analysis to pick short lists of undervalued stocks but waiting for the right technical signals to place my entry and hopefully I will be executing exits to realise profits better than I have in the past two years!
Actually, if investing in the stock market is at all analogous to relationships with the opposite sex, no wonder I'm in such trouble!