Momentum Investing

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Definition of 'Momentum Investing'

Momentum investing is a strategy that seeks to identify stocks that have recently outperformed the market and then invest in those stocks in the hopes of continuing the trend. Momentum investors believe that past performance is a good indicator of future performance, and they are willing to pay a premium for stocks that have been on a roll.

There are a few different ways to identify momentum stocks. One popular method is to use technical analysis, which looks at historical price and volume data to identify stocks that are trading at high levels of relative strength. Another method is to use fundamental analysis, which looks at a company's financial statements and other factors to determine its intrinsic value.

Once a momentum investor has identified a potential momentum stock, they will typically buy the stock and hold it for a short period of time, typically a few weeks or months. This is because momentum stocks tend to lose their momentum after a few months and investors want to take profits before the stock starts to decline.

Momentum investing can be a profitable strategy, but it is important to remember that it is also a risky strategy. There is no guarantee that a momentum stock will continue to outperform the market, and investors can lose money if they buy a stock at the wrong time.

Here are some of the pros and cons of momentum investing:


* Momentum investing can be a profitable strategy over the long term.
* Momentum stocks tend to be less volatile than other stocks.
* Momentum investing can be a good way to generate alpha.


* Momentum investing can be a risky strategy.
* Momentum stocks can lose their momentum quickly.
* Momentum investing can be difficult to implement.

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