Momentum Investing

DEFINITION of 'Momentum Investing'

An investment strategy that aims to capitalize on the continuance of existing trends in the market. The momentum investor believes that large increases in the price of a security will be followed by additional gains and vice versa for declining values.

BREAKING DOWN 'Momentum Investing'

This strategy looks to capture gains by riding "hot" stocks and selling "cold" ones. To participate in momentum investing, a trader will take a long position in an asset, which has shown an upward trending price, or short sell a security that has been in a downtrend. The basic idea is that once a trend is established, it is more likely to continue in that direction than to move against the trend.

RELATED TERMS
  1. Capital Markets

    Capital markets are markets for buying and selling equity and ...
  2. Trend

    The general direction of a market or of the price of an asset. ...
  3. Technical Analysis

    A method of evaluating securities by analyzing statistics generated ...
  4. Momentum Fund

    Investment funds that invest in companies based on current trends ...
  5. Market Momentum

    A measure of overall market sentiment, calculated as the change ...
  6. Momentum

    The rate of acceleration of a security's price or volume. The ...
Related Articles
  1. Mutual Funds & ETFs

    3 Strategies for Trading Mutual Funds

    Learn some of the most commonly used investment strategies employed by mutual fund managers or that can be employed by individual mutual fund investors.
  2. Trading Strategies

    Momentum Trading With Discipline

    This type of strategy demands controlled decision-making, requiring a continual refinement of entry and exit techniques.
  3. Trading Strategies

    Riding The Momentum Investing Wave

    Buy high and sell higher. Find out if you could surf these risky waters.
  4. Trading Strategies

    3 Ways Price Momentum Can Burn Your Portfolio

    Momentum traders are always trying to ride the herd. In these three situations, however, they may end up getting trampled.
  5. Trading Strategies

    Introduction To Momentum Trading

    This trading style offers major profit potential thanks to the powerful way in which momentum can drive a stock.
  6. Trading Strategies

    Use The Momentum Strategy To Your Advantage

    Learn how to use a number of different indicators to know when to make your trading moves.
  7. Trading Strategies

    Momentum And The Relative Strength Index

    These two indicators can give the trader a better understanding of when to get in and out of an issue.
  8. Trading Strategies

    Day Trading Strategies For Beginners

    From picking the right type of stock to setting stop-losses, learn how to trade wisely.
  9. Forex Education

    The 5-Minute Forex "Momo" Trade

    Learn this simple momentum strategy and its profit protecting exit rules.
  10. Forex Education

    Forex: Keep An Eye On Momentum

    Using the simple MACD histogram could change how forex traders analyze currency pairs for good.
RELATED FAQS
  1. How can I spot trading opportunities looking at year-to-date (YTD) performance?

    Trading opportunities on the long side can be spotted by looking at stocks with the worst year-to-date (YTD) performance, ... Read Full Answer >>
  2. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
  3. What are some of the most common technical indicators that back up Doji patterns?

    The doji candlestick is important enough that Steve Nison devotes an entire chapter to it in his definitive work on candlestick ... Read Full Answer >>
  4. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  5. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  6. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... 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