Is it ever OK to forget valuation? Yes -- if you have the right mindset.

Once I learned how companies were valued, and how to value companies, I found it increasingly difficult to trade stocks that I may have found interesting before. The idea behind investing is that the stock market offers you businesses at premiums and discounts to their values. Obviously, to make money, you try to purchase the stocks with the deepest discounts and wait for the market to realize their value. However, this certainly has its flaws -- namely, you might have valued the company incorrectly. If you have too much conviction in this valuation, you can stand to lose a lot of money.

Trading is different from investing because you don't look at a stock as a business -- you look at it is a "stock." This mindset has its benefits over investing -- primarily the fact that money management becomes much easier because you can quickly cut losses without guilt.

Prior to learning about the concepts of value investing, I would guiltlessly trade in and out of stocks based on which sector was hot, momentum in earnings, and even momentum in price. And I happened to do well, but when another commitment came up (school) I was forced to shift to a more long-term mindset.

To this day, I still have trouble separating the mindsets of trading and investing and I often can't get myself to buy a hot momentum or story stock, although I've often found I would have made a profit. "If value investing is what many consider to be the tried and true way to beat the markets, why would you want to do anything different?" you might say, but I believe the answer to this is pretty simple -- value investing and passive, long-term investing gets boring. For someone who follows the markets on a daily basis, I'd like to speculate with a small percentage of my investing account and see if I can hit a home run.

A perfect example of the value stock vs. trading/momentum stock mindset can be displayed in a stock I covered yesterday, Under Armour (NYSE: UA). This stock certainly has tremendous trading momentum behind it, as well as interesting short-term potential due to the short-squeeze scenario. Yet, when looking at this stock as a business, one sees a painfully overvalued company with many issues likely to surface in the next 3-12 months due to margin contraction and price cuts. While I don't doubt that short-term traders can pull some more profits out of the stock, for long-term investors (much of this site's reader-base), I feel like the stock is too dangerous at these levels.

All this being said, I find myself being more interested in the trading space than usual lately for one simple reason: the market is on fire. In this market, finding value stocks on a regular basis is an incredibly difficult task. This is the best type of market for the momentum story stocks that I dabble in when trading.

If I could advocate one thing for trading, I'd preach learning about money management; learning when to cut losses, how to move stops, how to size positions, and the likes. While much of this can only come from experience, such as where to place a stop, many of these lessons can be learned from trading books.

I also have found it very helpful to always have a thesis for trades as to what is going to move the stock. I've made most of my outsized profits riding a high-growth momentum play in a popular sector. For example, following Level 3's (NASDAQ: LVLT) earnings report next Thursday, I think the company offers many characteristics of an interesting trade. It is in a very hot and interesting industry, it continues to make positive acquisitions, and the company is growing quickly. As an added bonus, I think the stock also has some interesting value properties.

Another interesting trade is Ciena (NASDAQ: CIEN). The stock is on fire, recently running from $25 per share to almost $40 per share. The company is growing rapidly: year-over-year sales growth is in the 37% range for this year, year-over-year earnings growth is roughly 250%. Ciena is benefiting extraordinarily from Verizon's network buildout. And throw in the fact that this company is also in a very popular sector as well as being parts of "vital to the triple play" according to Jim Cramer, and I think this one looks great.