When you hear momentum investing, a strategy that buys assets rising in price and sells those falling, based on the idea that trends tend to continue. Also known as trend following, it doesn’t care if a stock is overvalued—it only cares if it’s moving up. This isn’t guesswork. Studies from academic journals like the Journal of Finance show that stocks with strong recent performance tend to keep performing well for months, even years. It’s one of the few investing styles that works across markets, asset classes, and time periods—from small-cap stocks to commodities to international ETFs.
Momentum investing doesn’t need you to forecast earnings or analyze balance sheets. Instead, it uses simple rules: track price changes over 3 to 12 months, rank assets by performance, and buy the top performers. It’s the opposite of value investing, which looks for cheap stocks. Momentum traders don’t wait for bargains—they chase winners. And it’s not just for pros. Many ETFs and robo-advisors now include momentum signals in their portfolios because the data backs it up. The key is timing: you enter when the trend starts and exit before it reverses. That’s where discipline matters more than intuition.
Related concepts like relative strength, a measure comparing an asset’s performance against a benchmark or other assets help filter the best candidates. You’re not just looking at one stock’s rise—you’re asking, "Is this stock rising faster than others?" That’s how you avoid fake breakouts. And while asset allocation, how you spread your money across different types of investments isn’t the focus of momentum, it’s still critical. You don’t put all your money into one momentum stock. You spread it across a basket—like a momentum ETF—to reduce the risk of a single crash wiping you out.
What makes momentum investing powerful is its simplicity and consistency. It doesn’t require you to predict the future. It just asks you to follow what’s already happening. The hardest part? Sticking with it when everyone else is panicking and selling. That’s when the real returns happen. You’ll find posts here that break down exactly how to spot momentum signals, which tools to use, how to avoid common traps like buying too late, and how to combine this strategy with other approaches like diversification across time horizons or tax-efficient ETF management. Whether you’re new to this or looking to refine your edge, the articles below give you the real-world steps—not theory.
Momentum investing buys stocks that are already rising, riding trends instead of chasing value. Learn how it works, why it outperforms in bull markets, and how to avoid its biggest pitfalls.
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