Stock Market Investors » Glossary of Stock Terms » What is Momentum Investing?

What is Momentum Investing?

Momentum investing includes the purchase of stocks that experience significant speeds in their price increase. Momentum investors base their investment on the tactic of holding a stock until its price continues to rise. Once the price starts to fall, investors will sell the price.

The earnings that the company generates and its price are the major measures on the momentum of the stock. The basic aspect underlying momentum investing concerns the targeting of stocks that have experienced highest price changes over the most recent months. Momentum investors assume that such companies will continue to generate profits and for the moths to come.

Companies that experience high growth in their returns are also in the focus of momentum investors.

However, momentum investing comes with its risk. Namely, momentum stocks are generally in the focus of most investors. This means that the price of the stocks and the P/E may be already high, which leads to your inability to purchase them cheap. The price will quickly fall when a small decrease in the earnings is experienced.

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