Momentum

DEFINITION of 'Momentum'

The rate of acceleration of a security's price or volume. The idea of momentum in securities is that their price is more likely to keep moving in the same direction than to change directions. In technical analysis, momentum is considered an oscillator and is used to help identify trendlines.

BREAKING DOWN 'Momentum'

Once a momentum trader sees acceleration in a stock's price, earnings or revenues, the trader will often take a long or short position in the stock in the hope that its momentum will continue in either an upward or downward direction. This strategy relies on short-term movements in a stock's price rather than fundamental value, and it is not recommended for novices.

RELATED TERMS
  1. Price Rate Of Change - ROC

    A technical indicator that measures the percentage change between ...
  2. Contrarian

    An investment style that goes against prevailing market trends ...
  3. Countertrend Strategy

    A trading strategy where an investor attempts to make small gains ...
  4. Price By Volume Chart - PBV

    A horizontal histogram plotted on the chart of a security, which ...
  5. Momentum Fund

    Investment funds that invest in companies based on current trends ...
  6. Style

    The investment approach or objective that a fund manager uses ...
Related Articles
  1. Mutual Funds & ETFs

    The Top 4 Micro Cap Mutual Funds for 2016

    Discover the four mutual funds that offer investors exposure to micro-cap stocks, and learn more about why investors should consider these funds in 2016.
  2. Mutual Funds & ETFs

    The Top 5 Mid-Cap Growth ETFs for 2016 (VOT, IWP)

    Discover five of the top mid-cap growth ETFs available, and learn how to get exposure to growth-oriented companies across the economy.
  3. Stock Analysis

    2016's Most Promising Tech Investments

    Find out about some of the most promising tech investments for 2016: GoPro, Australian software developer Atlassian and solar power giant First Solar.
  4. Mutual Funds & ETFs

    PJP: PowerShares Dynamic Pharmaceuticals ETF

    Learn about the PowerShares Dynamic Pharmaceuticals exchange-traded fund, which specializes on investing in pharmaceutical companies.
  5. Investing Basics

    5 Goldman Sachs Mutual Funds with Long Track Records

    Learn more about Goldman Sachs' history in the mutual fund industry and discover which funds in its lineup have been around the longest.
  6. Mutual Funds & ETFs

    4 Low-Fee Goldman Sachs Mutual Funds

    Discover four mutual funds managed and advised by Goldman Sachs that have low net expense ratios and no minimal investment requirements.
  7. Retirement

    Is Netflix Stock Suitable for Your IRA or Roth IRA? (NFLX)

    Learn about the risks of Netflix's business plan and long-term corporate strategy, and see if the stock's risk/reward profile warrants inclusion in an IRA.
  8. Retirement

    Is Berkshire Hathaway Stock Suitable for Your IRA or Roth IRA? (BRK.B, BRK.A)

    Discover how Warren Buffett's Berkshire Hathaway is structured and if the company is appropriate for individual retirement accounts.
  9. Active Trading Fundamentals

    Confirming Price Movements With Volume Oscillators

    Use this indicator to validate a change in price direction and moving averages.
  10. Active Trading

    Measure Momentum Change With ROC

    Learn how to build a price rate of change indicator and incorporate it in your strategy.
RELATED FAQS
  1. Why is trading volume important to investors?

    Trading volume, or volume, is the number of shares or contracts that indicates the overall activity of a security or market ... Read Full Answer >>
  2. What are the best technical indicators to complement Weighted Alpha?

    Weighted alpha isn't necessarily meant to complement other technical indicators; instead, it helps technical investors and ... Read Full Answer >>
  3. Why is the Volume Weighted Average Price (VWAP) important for traders and analysts?

    Volume-weighted average price (VWAP) is an important tool that traders use to gauge whether a stock was bought or sold at ... Read Full Answer >>
  4. Why is the Williams %R oscillator important for traders and analysts?

    The Williams %R indicator is significant in that is provides evidence of markets which are overbought or oversold and generates ... Read Full Answer >>
  5. How are Upside Gap Two Crows patterns interpreted by analysts and traders?

    The upside gap two crows is a three-day bearish reversal pattern that signals the end of an existing bullish trend. There ... Read Full Answer >>
  6. How are Triple Top patterns interpreted by analysts and traders?

    The triple top pattern, like its counterpart, the triple bottom, is an extremely reliable reversal pattern. Forming over ... Read Full Answer >>
  7. What is the difference between Stochastic Oscillator & Stochastic Momentum Index?

    The Stochastic Momentum Index, or SMI, is a more refined version of the stochastic oscillator, employing a wider range of ... Read Full Answer >>
  8. What does a cross over on the Percentage Price Oscillator (PPO) mean?

    A crossover on the percentage price oscillator (PPO) indicates a shift in market momentum, either from buying to selling ... Read Full Answer >>
  9. Who developed the relative strength index (RSI)?

    J. Welles Wilder, Jr. created the relative strength index (RSI) following a career in mechanical engineering and real estate. ... Read Full Answer >>
  10. How do I implement a forex strategy when spotting a Runaway Gap Pattern?

    Forex traders treat runaway gaps in a similar fashion as short-term stock traders. Runaway gaps – also called measuring gaps ... Read Full Answer >>
  11. How effective is creating trade entries after spotting a Rounding Top pattern?

    Trade entries created after recognizing a rounding top pattern can be very effective, but they must be carefully managed ... Read Full Answer >>
  12. Why is divergence between indicators important for traders?

    Divergence occurs when a technical indicator moves in the opposite direction of the price of its underlying asset. Under ... Read Full Answer >>
  13. Why is a divergence of momentum and trend important for traders and investors?

    Accurately identifying trend reversals is often considered the holy grail of investment trading. Analysts and traders use ... Read Full Answer >>
  14. How do I implement a forex strategy when spotting a Marubozo pattern?

    A simple forex trading strategy can be created after seeing a marubozu pattern depending on the market context in which the ... Read Full Answer >>
  15. How do I identify divergence on a security?

    Divergence occurs when a security's price moves opposite relevant indicators, creating a disparate situation that traders ... Read Full Answer >>
Hot Definitions
  1. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  2. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  3. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  4. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  5. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  6. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center