Liquid Momentum is Briefing.com's premium service designed for active swing traders. The system is made up of a proprietary quantitative screen that generates a weekly Focus List of the top 50 swing trading stocks in the market, as well as regular reports throughout the week that feature hand-picked technical set-ups among the Focus List stocks.

Below, you'll find our User's Guide for Liquid Momentum. This brief guide is intended to give you an overview of what the system is designed to do and how it works. The FAQ section below answers common questions that we have received over the years from our subscribers.    

Executive Summary

• Liquid Momentum is a technical trading service designed for active swing traders, featuring both long and short ideas
• The Liquid Momentum system consists of two complementary parts:
  • The weekly Focus List: Each week we publish a Focus List of the Top 50 swing trading stocks in the market, which is generated by our proprietary quantitative screen and ranking system. This helps traders narrow down their universe to a compact, actionable list of stocks that evolves with the market.
  • Detailed technical set-ups: Our senior technical analysts post detailed set-ups on Focus List stocks throughout the week, alerting you to opportunities among Liquid Momentum names.
• The quantitative screen that generates the Focus List rankings is based purely on technical data points -- no fundamentals are considered (if you're looking for a hybrid technical/fundamental system, our Emerging Growth system might be a better fit).
• The holding period for suggested trades varies, but typically they last several days, and sometimes up to several weeks.

How The System Works

At its core, Liquid Momentum is designed to help active swing traders answer two key questions:

1. Which stocks show the best swing characteristics right now?
2. When are these swing candidates exhibiting promising set-ups?

The first question concerns an issue that every trader has to manage every day of the trading week: how do you narrow down your trading universe to a manageable list of names? Our answer to this was to isolate the defining characteristics of good swing trading stocks, and then create a proprietary quantitative screen and ranking system that will provide an updated Focus List each week.

As such, our algorithm places heavy emphasis on the following three trading characteristics:

• Price Volatility: We use a ratio of Average True Range (ATR)/Price to isolate stocks that show the greatest recent price volatility.
• The Existence of a Trend: Stocks that have been trending make much better swing candidates than those that show no identifiable pattern and whose charts are full of noise. Rather than rely on more specialized technical trend indicators such as ADX, we use a much simpler indicator that has worked well for us in the past: 6-month Relative Strength.
• Liquidity: Our minimum requirement is an average daily volume of 1 million shares per day.

Each week we run a screen of all US equities in order to isolate stocks that possess these three core swing trading attributes, as well as a number of other proprietary technical data points. We then rank those that make the cut based on a #1 through #50 scale. This is our weekly Focus List of the top 50 swing trading names in the market.

A new list is published at the beginning of each week (typically late Friday afternoon or early Monday morning). Think of the Focus List as your weekly tearsheet that gives you a concentrated watchlist of the best swing trading candidates that constantly evolves with the market.

Here is an example of what the rankings look like:      

Looking at the image above, you'll notice that the data within the table is made up almost entirely of technical criteria (the Industries and PEG Ratios are there just for reference). To make this explicit, given the system's swing trading focus, the Liquid Momentum algorithm is a purely technical screen, and contains no fundamental criteria. While many of the stocks on the list do happen to have excellent fundamentals -- one way to interpret sustained Relative Strength is that it serves as a technical proxy for improving fundamentals -- for the purpose of swing trading we focus exclusively on technical characteristics.

Given the Relative Strength component of our algorithm, Liquid Momentum stocks tend to show a strong upside (long) bias. However, an experienced swing trader should find this list equally valuable in both bull and bear markets, since high-RS stocks tend to make outsized moves in both directions, allowing for some excellent shorting opportunities in a correcting market.

In terms of how we answer the second question identified above (when are these swing trading candidates setting up for favorable entry/exit points?), we rely on our experienced technical analysts to answer that. Several times per week, our technical team provides a series of charts highlighting which of the Liquid Momentum components show the most promising swing setups.

So, whereas the ranking algorithm described above represents the "science" of the system, the hand-selected charts that our analysts highlight represent the "art" of identifying profitable swing trading ideas. These charts and set-ups appear in the Liquid Momentum reports, which can found in the Trading Ideas / Technical section of the service.

Here is an example of a stock that was highlighted within a Liquid Momentum report:

In addition to publishing reports several times per week, our technical team also posts real-time commentary concerning Liquid Momentum stocks to the Live In Play page. This commentary typically consists of follow-ups to existing set-ups (say, a breakout candidate we highlighted two days ago is about to trigger) or observations regarding certain components that are showing unusual intraday volatility or relative strength/weakness, etc.

To make it easier to track Liquid Momentum commentary on the Live In Play page, every comment can be accessed using the LQDXX ticker. So for users of this system, rather than updating your Alerts with the new list of 50 stocks each week, you can simply put one ticker in your alert: LQDXX. You can also search the archive using this ticker as well.

Here is an example of a Liquid Momentum comment posted to the Live In Play page:    

To recap, the main features of the Liquid Momentum system are:

• Each week we publish an updated Focus List of the top 50 swing trading names in the market, which helps traders narrow down their universe to an actionable list of stocks
• Throughout the week, our technical analysts help you trade the Liquid Momentum names by highlighting promising swing set-ups, either long or short, depending the market.

What the Liquid Momentum ranking system is not meant to do

The Liquid Momentum rankings are expressly designed to be an evolving watchlist of stocks showing the best swing trading characteristics. It was not designed to be a "buy and hold" portfolio.

While our analysts highlight promising technical set-ups, and often suggest support or resistance zones where it might be a good idea to take profits or close out a position, the system was not intended to provide specific exit calls for trades that are entered. (This is because every trader has their own style, preferred timeframe, and level of risk tolerance.) Traders who use the Liquid Momentum system should always have pre-defined exit areas in mind whenever they enter a trade.

Along similar lines, stocks that appear on the Focus List are not intended to represent investment ideas. Of course, readers may do their own research and decide that a particular name might make a good investment or longer-term holding, but that is not what our quantitative screen and hand-picked setups are intended to highlight.

Frequently Asked Questions

Where can I find the Liquid Momentum content?

In two places:

• The Liquid Momentum reports are found on the Trading Ideas / Technical homepage, along with the rest of our Technical content. Here is a link for the Liquid Momentum archive, specifically.
• Intraday updates are published to the Live In Play page. These comments are typically posted under the company's ticker, but all Liquid Momentum content can be accessed via the LQDXX ticker, whether using alerts or the Live In Play archive.

What is the "best" way to use Liquid Momentum?

Some general suggestions for new users:

• Each Monday, print out or paste the new Focus List into your quote screen, and use that as your swing watchlist for the week.
• Set up an LQDXX ticker alert and monitor the set-ups that we post in the reports, or on the Live In Play page.

This is basically your prep work, and it is similar to how our Technical team prepares to trade each week -- i.e. narrow down your universe to a manageable list, and prepare a game plan to take advantage of set-ups as they develop.

A key point that we'd like to make here is that people trade the Liquid Momentum stocks differently, so your tactical approach will depend on your experience level, time horizon, and risk tolerance. Further, while the Liquid Momentum stocks often have a strong upside bias due to the Relative Strength component of the screen, the state of the broad market will play a big role in how you trade these stocks and whether to go long or short. Our lead technical analyst Scott Smith frequently comments on his "big picture view" at the beginning of each report, which will give you an idea of how he's trading these stocks. For example, during the strongly trending market that existed during the winter of 2010/2011 he was buying breakouts and taking advantage of temporary weakness to buy on pullbacks. However, in May 2011, as the market was showing signs of stalling out, his favored tactic was to short failed breakouts among the Liquid Momentum stocks.

If you're an experienced trader, you will probably rely on the Focus List to help define your universe, and use our suggested set-ups more as a "spotter" for opportunities you may have overlooked. If you've only been trading a few years, then using the Focus List and analyzing the suggested set-ups will teach you quite a bit as to how to prepare a game plan and to trade these volatile, high-momentum stocks.

If you have questions about this feature at any time, please don't hesitate to write to us at liquidmomentum@briefing.com (just keep in mind that we can't make specific trading or investment recommendations in reply to emails about individual stocks).    

Can you quantify the performance of the Liquid Momentum rankings?

The Liquid Momentum rankings are intended to be a weekly watchlist for active traders, and not a portfolio, so we do not track performance of the 50 components.    

A name that I have been trading was just deleted from the list. How should I interpret that?

The first thing to keep in mind is that the Liquid Momentum rankings are a concentrated list -- generally, they are the top 50 stocks out of a universe of 3,000+ US equities. In any given week you're going to see some stocks bounce on and off the list, simply because they straddle one or more of our quantitative screening criteria. Our suggestion is not to focus too much on the Additions and Deletions each week, but to closely monitor instead the most promising chart patterns among both current components and a smaller subset of recently deleted but still healthy-looking names.

Having said that, if a name falls off the Liquid Momentum rankings and stays off for several weeks, that means that some of the key swing trading criteria that we discussed above have deteriorated, which suggests that you should probably remove that name from your watchlist and focus more on the current components.

What is the holding period for the typical Liquid Momentum trade?

This varies with the state of the market, but typically the holding periods for suggested swing trades range from several days up to several weeks.

How do I copy/paste the list into my quote sheet?

This is a frequent request from our users, so we have added a link directly above the table that allows users to copy/paste the list of Liquid Momentum tickers. This link is contained within the text: "If you would like to copy and paste the Liquid Momentum components into your chart watchlist or spreadsheet, click here to pull up an unformatted ticker list."

Is there a fundamental component to Liquid Momentum?

No. The Liquid Momentum system is designed exclusively to identify the best swing trading candidates, which by definition relies on technical data.

Having said that, many of the stocks on the list do happen to have excellent fundamentals, since sustained Relative Strength often serves as a technical proxy for improving fundamentals. But it is up to the user to do their own research on a stock if they want to utilize the rankings in this way.    

Why do overtly weak stocks sometimes get added to the list?

At times new names appear on the rankings which have suffered a severe sell-off in recent weeks. In almost all cases, this occurs because:

• Even factoring in the recent sell-off, the stock still shows an impressive gain over the past six months (in other words, while its 6-month RS rank may have fallen, it is still strong)
• An expansion in volatility accompanied the sell-off, driving its ATR above our threshold.
• An expansion in volume accompanied the sell-off, driving its average volume above our threshold.

Similar to the point we made in the "Deletions" FAQ above, this is a case where users should focus more on the chart pattern itself rather than the fact that it's a new addition. 

Who are the primary analysts who work on Liquid Momentum.

• Scott Smith, CMT: Lead Technical Analyst
• Jim Busch: Senior Analyst & Developer of the Liquid Momentum system

     -- Jim Busch