⚡ Momentum Investing

Learn how to capitalize on short-term trends by riding stocks with upward momentum.

Introduction

Momentum investing is about buying stocks that are already rising and selling those that are falling.
The idea is that trends tend to persist, and investors can profit by riding the wave.

Core Principles

  • Trend Following: Focus on stocks with strong upward price momentum.
  • Relative Strength: Compare performance against peers or the overall market.
  • Timing: Entry and exit points are critical to success.

How It Works

  1. Identify Leaders: Screen for stocks hitting new highs or outperforming benchmarks.
  2. Use Technical Indicators: Moving averages, RSI, and MACD help confirm momentum.
  3. Act Quickly: Momentum trades often require shorter holding periods.

Advantages

  • Potential for rapid gains in trending markets.
  • Works well in bull markets with strong sector rotation.
  • Can complement long-term strategies with tactical exposure.

Risks

  • Volatility: Momentum stocks can reverse quickly.
  • High Turnover: Frequent trading increases costs.
  • False Signals: Technical indicators may mislead in choppy markets.

Famous Momentum Investors

  • Richard Driehaus: Known as the “Father of Momentum Investing.”
  • Jesse Livermore: Legendary trader who capitalized on market trends.

Conclusion

Momentum investing is fast‑paced and requires discipline.
It can deliver strong returns when trends persist, but demands careful risk management.