Short lessons on momentum trading, every day.

The Best Stocks Usually Look Strong Before They Look Obvious

William O’Neil said this in Market Wizards, and it still applies today:

“The 500 best-performing stocks during the 1953–1985 period had an average relative strength of 87 before their major price increase actually began.”

That is the point most investors miss.

The best stocks usually do not start their big moves from weakness.

They start from strength.

They are already outperforming the market, already showing demand, and already separating themselves from the average stock before the crowd fully recognizes what is happening.

This is why relative strength matters so much.

It helps us focus on where institutional money is already flowing instead of wasting time digging through laggards because they look “cheap.”

Strong stocks can always get stronger.

LITE is a recent example. Back in January, it already had a 99 Relative Strength Rating, and it still went on to gain more than 100%.

Strength should not scare you away.

It should get your attention.

Weak stocks can stay weak much longer than people expect.

The goal is not to find the lowest-priced stock.

The goal is to find the leaders before the move becomes obvious.

What We Actually Do As Momentum Traders

For those of you that are new, here’s what we actually do.

Momentum Trading Strategy primarily focuses on swing and position trading, mainly in growth stocks, while following the trend.

Our strategy is rooted in principles that have worked for over 100 years.

The foundation comes from traders such as Jesse Livermore, Gerald Loeb, Bernard Baruch, Richard Wyckoff, Nicolas Darvas, William O'Neil, and more modern traders like Mark Minervini, David Ryan, Dan Zanger, Kristjan Kullamägi, along with many U.S. Investing Champions.

Different eras.

Same principles.

So what are we primarily looking for?

When the market is bad, we are preserving capital.

We are mostly in cash.

We are preparing for the next Stage 2 uptrend.

When the market is healthy, we are looking to participate in the strongest industry groups.

This changes cycle to cycle.

More recently, we’ve seen strength in areas like computer data storage with names like SNDK.

Telecom with LITE.

And semiconductors with AAOI.

Within these hot industry groups, we are looking to trade the biggest names and the best leaders.

These tend to have high relative strength (RS), meaning they are outperforming the index and most other stocks in the market.

They also have fuel driving that strength.

That fuel usually comes from:

• Strong earnings

• Strong sales

• Or acceleration in earnings and sales

Also, something that might catch the market off guard.

These stocks are typically making new highs repeatedly.

If you look at the chart, they are consistently forming higher highs and higher lows.

So what we are doing is aligning:

• The overall bull market theme

• The hottest industry groups

• The strongest stocks within those groups

All while looking to enter at points that offer low-risk, high-reward opportunities.

If we are wrong, we lose a small amount.

If we are right, we make multiples of that risk.

3x. 5x. 10x. 15x. 20x.

That’s the entire game.

My goal is to provide you with all the tools necessary to actually do this.

Paid subscribers get access to:

• A web app with a Relative Strength Stock Screener to find these types of stocks

• A weekly market newsletter to help you stay aligned with the market

• A Relative Strength dashboard

• A watchlist feature and additional risk management tools

• Shared stock ideas and scans

• And a full course that breaks all of this down in depth.

All for $120 per year.

That’s only $10 per month.

If that’s too expensive, then frankly, you probably shouldn’t be trading.

Is a 5% Stop Too Tight in Today’s Market?

I got a great comment recently:

“It’s just that -5% is not much in today’s markets. Not enough not to get whipsawed. What’s your view?”

Here’s my answer.

I disagree.

There are still plenty of setups where you can risk 5 percent or less.

If that wasn’t the case, traders like Kristjan Kullamägi wouldn’t be as successful as they are.

Same with Mark Minervini. He won the U.S. Investing Championship in 2021. He’s still finding tight entries in today’s market.

It comes down to tactics and timing.

This TSLA example is a good illustration.

On the right side of the base, price was tightening and structure was clean. That created multiple opportunities where risk could be kept at 5 percent or less.

Recently (2025-2026), with many of the big winners already extended in Stage 2 uptrends, it’s a different environment.

If you’re only buying standard breakouts here, then yes, your stop likely needs to be 7 to 10 percent.

But that’s just one way to play it.

A lot of the big winners from 2025 to now in areas like computer data storage and telecom, names like LITE, SNDK, MU, CIEN, WDC, were harder to trade with tight risk using traditional breakout entries.

Their ADR% was higher, and there was less contraction into the pivot, so traders had to adapt.

Pullback entries. Low cheats. Intraday entries like ORB.

Those allow you to define risk much tighter and still participate without getting shaken out.

CIEN is another good example.

After an episodic pivot on earnings, price ran, then tightened sideways. That created a clean opportunity to enter with defined, tight risk.

This isn’t about forcing a fixed 5 percent stop on every trade.

It’s about finding entries with proven setups where tight risk actually makes sense.

Timeframe matters. Setup matters. Execution matters.

And just like Minervini, I’m not rigid with it.

Some trades might be 3 percent risk. Some 5 percent. Some 6 to 8 percent depending on the setup.

I’ll even go up to 10 percent and adjust position size, but I prefer tighter risk when the setup allows it.

Another good example is NVDA in 2024. I had about 6 percent risk. Someone else could have taken the same trade and used the breakout day opening range low as a stop and risked closer to 1.82 percent and likely wouldn’t have been stopped out.

Like David Ryan often emphasizes, the best trades tend to be hard to buy, work right away, and don’t look back.

The principle stays the same.

Keep losses small. Don’t let one trade do real damage.

And at the end of the day, we all trade differently and that’s ok.

That’s what makes a market.

Different styles can still make money.

This Is What Real Leadership Looks Like

It’s not a coincidence.

When we look at the Top 10 Industry Groups right now, we’re seeing clear clustering of strength:

• Telecom: AAOI, LITE, CIEN, VIAV

• Computer Data Storage: SNDK, WDC, STX

• Semiconductors: TER, AEIS, AEHR, LRCX

All showing up in the top groups.

This is exactly how leadership reveals itself.

It’s not just one stock. It’s clusters of strength moving together.

When you start seeing multiple names across the same industry groups all:

• Breaking out

• Showing strong relative strength

• Backed by strong fundamentals

That is not random.

That is institutional money flowing into a theme.

This is how real trends work.

Stay focused on where the strength is clustering, just like we teach in the MTS Course. https://tradingmomentum.substack.com/s/mts-course

How do we find the strongest names in the strongest groups?

Relative Strength Stock Screener.

Use it now as part of the MTS Web App https://momentumtradingstrategy.app/

That’s where the opportunity is.

Trading and Entrepreneurship Follow the Same Playbook

Most people think trading is about predicting.

It’s not.

It’s about testing.

Great entrepreneurs don’t wait for certainty. They move with conviction, knowing they could be wrong. Even someone like Jeff Bezos didn’t know which ideas at Amazon would become massive winners. They tested constantly. Many failed. A few changed everything.

That’s exactly how we operate as traders.

We’re not here to be right 100% of the time. That’s impossible.

We’re here to:

• Test ideas with real capital

• Cut losses quickly when we’re wrong

• Add when something proves itself

• Let the real winners run

Our strategy is built on what has worked for decades, but even then, no individual trade is guaranteed to be a winner.

The market decides what works.

For example, those of you who are paid subscribers heard me talking about LITE back in January, and it has gone up over 125% since then. But here is the honest truth. It was one of many names I was looking at and trading.

There were plenty of other stocks with big earnings, strong sales, and high relative strength just like LITE that did not move.

The difference is simple.

I cut the losers and added to the ones that worked.

I will even continue trading that same name off and on until it clearly shows the move is over.

Just like in business, you don’t go all in on every idea. You place small, calculated bets, watch what gains traction, and then press your advantage when something starts working.

In fact, this is even more important in trading. In business, you can take action to influence outcomes. In the market, you cannot. Once you enter a trade, the market is in control.

So start treating trades like a series of small tests, and let the market tell you which ones deserve more capital.

Cut losers. Press winners.

Whether you're building a company or trading stocks, the principle is the same.

LITE Earnings Turnaround Before the Breakout

Most traders wait for perfect earnings. The market does not.

LITE spent two years with weak and declining earnings. Growth slowed. Some quarters turned negative. Nothing looked attractive.

Most people ignored it.

Then the shift happened.

Before the major move in 2025, earnings flipped. Negative quarters improved and turned positive. Then growth began to accelerate.

Annual earnings surged into triple digit growth.

But there is another layer most traders miss.

Both Mark Minervini and David Ryan have pointed out that during major turnarounds, analysts are often behind the curve. Their estimates tend to be too conservative.

Price begins to move as institutions recognize the change early, while analysts are still catching up or providing conservative estimates.

The stock did not wait for perfect fundamentals. It moved when the trend changed.

This is what matters.

Not just strong earnings, but improving and accelerating earnings.

Watch for earnings turnarounds.

The Simple Screener That Finds Momentum Breakout Stocks

One of the biggest questions traders ask is:

“How do you actually find these breakout stocks before they move?”

The answer is simpler than most people think.

You start by narrowing the market down to the strongest stocks already showing leadership.

One of the fastest ways to do that is by using a Relative Strength Stock Screener.

This is the same basic idea used by momentum traders like Kristjan Kullamägi when searching for breakout setups.

The Simple Process

Use a relative strength screener and sort stocks by performance.

Move the rank by timeframe to 1 or 3 months, then set the filter to 98 or higher.

That shows you the top performing ~2% of stocks in the market.

Those are the names you want to study.

Why This Works

Because the biggest winners tend to behave in a very specific way.

As Kristjan explains:

“If you study thousands of the biggest winning stocks over the past 100 years they tend to move in stair steps. Meaning they will make a 20–50%+ move, pull back and go sideways for a while, then make another move.”

That stair-step behavior is where momentum traders find their edge.

A stock makes a strong move. Then it pulls back and consolidates. Then it breaks out again.

Those consolidations are where many of the best breakout setups form.

The key is focusing on stocks that are already proving themselves as leaders.

That’s why scanning for the top 1–2% performers is so powerful.

What to Look For Next

Once you identify leaders, start watching for technical setups such as:

• Tight consolidations

• Volatility contractions

• High tight flags or pennants

• Higher highs and higher lows

• Flat base breakouts

Other patterns that often appear in strong leaders:

• Ascending triangles

• Darvas boxes

• Wedges

• Parabolic curves

And always watch the volume behavior:

• Volume drying up during pullbacks or consolidations

• Heavy volume expansion on breakouts

This is one of the easiest ways to build a watchlist of potential momentum leaders before they make their next move.

In fact, this exact process is how I spotted LITE before it went on to move over 100%.

For Paid Subscribers

For those inside the paid subscription, you already have access to the Relative Strength Screener tool that automatically filters for these types of stocks.

It’s one of the simplest ways to quickly narrow thousands of stocks down to a handful of high-probability breakout candidates, the same type of setups momentum traders like Qullamaggie focus on.

If you're more CANSLIM / position trader focused, you can slightly loosen the relative strength filter and add Sales and Earnings growth to your screen.

Another option is to use the Super Performer preset in the screener, which combines several of those fundamental growth filters.

You’ll find the screener inside the Momentum Trading Strategy section for paid subscribers.

Why I Mentioned AAOI Before Earnings

Someone asked why I mentioned AAOI in early February with earnings coming up.

First, the stock checked several boxes I look for.

It was in a HOT group (telecom) showing strong relative strength across multiple timeframes. I had already seen success with LITE and CIEN, which are in the same space. It reminded me of past industry runs like the computer data storage group when SNDK, MU, WDC, and STX all moved together.

AAOI also had:

• Strong earnings and sales acceleration

• Rising forward estimates

• Accelerating fund ownership

• Tight price action on the right side of the chart

• Trading near new 52 week highs

Since that mention the stock has moved about 150%, but the trade management is the important part.

I normally do NOT buy a stock a few days before earnings. There is too much risk and no time to build a cushion.

I follow the advice from Paul Tudor Jones:

“Never trade in situations where you don’t have control. For example, I don’t risk significant amounts of money in front of key reports, since that is gambling, not trading.”

In this case there were about three weeks before the report, which gave the trade time to work.

From the original buy, the stock moved roughly 30% before earnings.

At that point the plan becomes simple:

• Trim a large portion before the report

• Lock in gains and reduce risk

• Hold a smaller position into earnings

Even great stocks can drop 15–20% overnight on earnings.

By trimming beforehand, the position already has a profit cushion, so the remaining shares carry much less risk.

This is something I learned studying the playbooks of William O’Neil, Mark Minervini, and David Ryan.

The goal isn’t predicting earnings.

The goal is managing risk while letting strong stocks work in your favor.

“It’s extended.”

That’s what people say when they haven’t studied enough.

This chart, originally shown in How to Make Money in Stocks by William J. O’Neil , shows something important.

Yes, the stock is extended from what most would call a traditional base.

But Home Depot in the early 80s kept offering low risk, high reward entries inside a powerful Stage 2 uptrend.

Look at the areas marked BUY:

• Tight consolidations

• Volume contraction

• Higher lows

• Breakout through short resistance

• Immediate continuation

That is not chasing.

That is entering strength with defined risk.

You do not always need:

• A cup with handle

• A massive reset

• A 30 percent correction

Big institutional leaders often stair step higher.

They build tight flags. They pause. They break out. They continue.

If the stock is trending above a rising moving average, If price is contracting, If volume dries up before expansion,

That is opportunity.

This is not FOMO into a straight up name. We are still being patient. We are still waiting for tight pullbacks inside strength.

It looks very similar to some of the biggest winners we have had recently.

How many could have stepped into MU, LITE, or AVGO using similar entry tactics?

Study that difference.

From RS Screener to Weekly Paid Newsletter to 55% Gain

We have been talking about buying pullbacks and upside reversals.

LITE just gave a textbook one.

What is interesting is how it first came onto our radar.

It showed up on our relative strength screener weeks before the breakout, while it was still setting up.

• Top tier relative strength.

• Strong on multiple timeframes.

• Fund ownership accelerating.

• Big earnings. Big sales.

You would have missed it on the MarketSurge O’Neil scan, which highlights the importance of casting a wider net. That is what I do when using the relative strength screener. First I scan for strength, then I dive into the chart and the fundamentals.

When we walked through this setup with paid subscribers, it was pulling back constructively after a strong advance and sitting near the 50 day moving average.

The plan was simple.

Entry around $365 on a move above the prior week’s high. Stop below the weekly low. We were also looking for follow through at the breakout level around $400.

We defined our risk, like we do with every trade.

No guessing.

Now it is up 55 percent from that area.

Here is the important part.

I am not some guru. I did not know LITE would be a winner. It simply met the criteria of big winners. Plenty of stocks meet the criteria and fail. When they do, I take a small loss.

But when a stock with elite relative strength sets up technically, offering a low risk, high reward opportunity, combined with strong CANSLIM type fundamentals, those are the kinds of names that can become major winners. You take them.

One stock like this can cover multiple failed attempts.

That is why we scan for strength.

Look for low risk, high reward technical setups.

Align with big sales, big earnings, accelerating fund ownership, and a bull market theme.

This is why we focus on process.

And that process produces the results.

Great example of volume and price analysis with LITE.

LITE was easily spotted on scanners for its Relative Strength performance (RS 99), huge earnings and sales acceleration, and its position in a leading sector and theme. This is exactly what real leadership looks like from a top industry group in telecom and fiber optics.

The setup was a flat base breakout after tight consolidation. Big volume came in on the first move up, followed by controlled consolidation where volume dried up, and then another surge of big volume on the breakout.

The combination of strong fundamentals, clean technical price action, increasing fund ownership, and leadership within its sector created a high quality risk and reward opportunity.