Mastering Momentum Trading — Ideal Market Conditions for Growth Stocks

ELI5 / TLDR

Leif Söreide, the 2019 US Investing Champion, trades fast-moving growth stocks. His one big idea: build a personal “universe” — a hand-defined list of stocks that fit your style — then count how many of them are setting up at any given moment. When the count is rising and led by the right sectors, you press hard. When it shrinks to a handful, you sit out or short. The rest is pattern craft: high tight flags, shakeouts at the 50-day line, and reading volume to tell whether real institutions are buying or just other traders front-running a breakout.

The Full Story

This is a conference talk, not a lecture — Söreide rambling through charts with an interviewer (Richard) lobbing questions. The substance is buried in the asides. Three ideas hold it together.

The universe and the histogram

The frame is “fish in the right spot.” Most traders, his pitch goes, will trade any stock with a clean chart pattern. Söreide’s discipline is the opposite: define a narrow universe up front and refuse everything outside it.

You got to Define your universe and say no to some stocks. You don’t have to trade everything with a nice chart pattern.

His universe is stocks in confirmed uptrends — the standard recipe of 50-day above 150-day above 200-day, borrowed openly from Stan Weinstein’s stage analysis and Mark Minervini’s trend template. On top he layers his own filters: enough liquidity, a minimum dollar price (he’s drifted up to $5-plus over the years), real sales and earnings rather than story-only names.

The novelty he’s selling this year is putting “math to it.” He counts how many stocks in his universe currently qualify and plots that count over time as a histogram tracked against the 21-day exponential moving average. The reading is a regime gauge. Down to five stocks in trend means “crickets — you’re on the dance floor by yourself,” i.e. stay out. Climbing toward a thousand (the COVID-era extreme) means the market is wide open but probably overbought, so watch for the exit. At the time of the talk he was around 400, roughly the 89th percentile — elevated, but with a catch.

False signals — the count can lie

The most useful section is where he undercuts his own indicator. A rising count is only bullish if the right stuff is driving it. In the weeks before the talk, his histogram was rising — but the new entrants were regional banks and home builders, not the growth leaders he actually trades.

Unless you’re going to move to the regional Banks very quickly you’re not really going to get much out of this Divergence here — kind of a false signal for the types of stocks we trade.

So he cross-checks the count against other signals: is technology leading the sector breakdown or sliding down it? Is growth beating value? And critically, is the FFTY ETF (Innovator IBD 50, fifty hand-picked growth leaders) confirming, or diverging into a head-and-shoulders while the count climbs on laggards? When the count rises but the leaders fall apart, the signal is hollow.

Reading the tape: who is actually buying

The pattern stuff is mostly inherited from William O’Neal — cup-and-handles, the CANSLIM “N” (something genuinely new about the company), the high tight flag. Söreide’s personal edge is volume reading, the part he admits is “more art than science.”

The core distinction is between real institutional buyers and swing traders front-running a breakout. Institutions buy in size, hold, and can’t fill their position in a single day. Swing traders flip out at 5 to 10 percent. So he wants weak hands gone before he enters.

I’d prefer if no swing Trader was involved in any stock I buy. I want to see real buyers because they’re not selling up five 10% — they’re holding it.

The footprints he hunts: heavy volume inside the base, before the official buy point (“who’s all of a sudden decided that they just have to have this?”); shakeouts on the 50-day moving average where a high-volume selloff closes in the upper part of the candle, then recaptures and turns. He cites O’Neal’s finding that the first one or two pullbacks to the 50-day in a true leader are reliable entries — confirmed, he’s pleased to report, in conversation with O’Neal’s lieutenant Mike Webster on IBD Live.

There’s also a contrarian volume read he calls the reverse pocket pivot: in an ugly growth selloff, sort the universe by relative volume and find the stocks the sellers couldn’t be bothered to dump. Quiet on the way down means the holders already showed their hand — they’re not selling — which gives better odds on the next setup.

The high tight flag

His signature pattern, teased here as a preview for a paid master class. The shape: a dormant stock that suddenly rips 90 percent or more in eight weeks or less, then corrects 25 percent or less — a sharp pole, a tight flag. The “N” matters enormously; the move has to be powered by something genuinely new (his examples: Celsius having the No. 1 energy drink on Amazon, AST SpaceMobile signing satellite-broadband deals with Verizon and AT&T).

He’s deliberately loose on the measurements. A 27 percent correction instead of 25 can still qualify; an 800-percent COVID mover isn’t worth measuring with a ruler. “Sometimes the spirit is the most important thing.” Variants get folksy names — a “rocket base” when the flag is wider than 50 percent and needs more time, a “low tight flag” for smaller 60-to-90-percent moves.

Risk and temperament

The risk framing is conventional but sane. Concentrate — his contest-winning peer Leos runs 2 to 8 stocks, 25 percent positions, on margin. Size up only when you’re already making money and “have the temperature of the stock.” Take scales into strength (he waits for 15 percent before scaling), use roughly 5 percent risk per attempt, and accept that a thin setup may need several tries. The honest admission underneath all of it:

If you don’t feel stupid once in a while trading, then you’re not trading. Everything can set up and they just dump it out… you can’t predict that.

His closing homework, repeated three times: define your universe. Be honest about what you actually trade well, narrow to it, and get specialized rather than running a hundred styles at once.

Key Takeaways

Define a personal stock universe and refuse everything outside it — uptrend filter (50 > 150 > 200 day) plus your own liquidity, price, and quality screens. Trade random stocks, expect random results.
Count the setups; track the count over time. A rising number of qualifying stocks (vs the 21 EMA) signals a hot tape worth pressing; a collapse to ~5 means sit out.
The count can lie. Cross-check what’s driving it — sector leadership (tech up, not energy), growth-beats-value, and whether the FFTY / IBD-50 leaders confirm. A count rising on regional banks and home builders is a false signal for a growth trader.
Distinguish institutional buying from swing-trader front-running. Want weak hands out first; look for heavy volume inside the base before the buy point, and shakeout-recapture turns at the 50-day MA.
Reverse pocket pivot: in a growth selloff, the stocks with the lowest relative volume are the ones holders refuse to sell — better odds on the next setup.
High tight flag: ~90%+ move in ≤8 weeks, correcting ≤25%, powered by a genuine “N” (something new). Spirit over exact measurement.
First one or two pullbacks to the 50-day SMA in a true leader are viable entries (O’Neal).
Risk discipline: concentrate (2–8 names), ~5% risk per try, scale into 15%+ strength, size up only after you’re already profitable in the name. Expect to fail a setup several times before it works.
In dead tapes, switch to shorting rather than forcing longs; breakdowns are the mirror image of breakouts.
Small caps moving fast are where accounts compound fastest — but it has to be the right small caps, not whatever happens to be in the trend.

Claude’s Take

Score: 6/10. This is a competent practitioner talking shop, and the honest parts are genuinely good — the willingness to say his own headline indicator throws false signals, and that volume reading is art with no formula, are the marks of someone who actually trades rather than just sells courses. The 50-day-pullback and the institutional-vs-swing-trader volume distinctions are durable, falsifiable ideas you could test.

The durable layer here is market-structure-flavored: leadership rotation is real, breadth and the quality of breadth matter, and forcing a momentum style in a tape that isn’t rewarding it is a known way to bleed. The “define your universe and specialize” advice is sound regardless of whether you believe in the rest — it’s really just a discipline against over-trading.

The weaker layer is survivorship-baked pattern-matching. The talk is one win after another — AVGO, Eli Lilly, Bitcoin, SkyWest, Celsius — narrated in hindsight, which is exactly the trap he warns about (“real-time trading is way different than the hindsight stuff on Twitter”) and then spends the whole talk doing anyway. There are no hit rates, no expectancy numbers, no losing streaks shown beyond a hand-wave. The high tight flag’s deliberate looseness (“sometimes the spirit is the most important thing”) is unfalsifiable by design — convenient for a setup that’s mostly defined after the fact. And a good chunk of the talk is a soft-sell for the Champion Team subscription and an upcoming master class, which is fine but worth naming.

Net: a useful window into how a disciplined momentum trader frames market regime and tape-reading, lighter on anything you could verify. Worth it for the universe/breadth framing and the volume tells; discount the trade-replay highlight reel accordingly.