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Momentum Investing

In short

Buying what's already rising — trend-following based on price momentum

Momentum investing buys stocks that have been going up, betting they'll keep going up. Research shows winning stocks keep winning for 3-12 months on average. It's the opposite of contrarian value investing — you follow the trend, not fight it.

Momentum investing exploits the documented tendency of recent winners to continue outperforming. Academic research by Jegadeesh and Titman (1993) found 12-1 month momentum is one of the most robust return factors. Momentum crashes violently during sharp market reversals.

Related concepts

  • Value Investing — Value investors hunt for companies the market has mispriced — cheap relative to their true worth. Like finding a $100 bill selling for $70. The strategy requires patience: sometimes the market stays wrong for years.
  • Growth Investing — Growth investors buy companies growing fast — even if the stock seems expensive today. The bet is that rapid revenue and earnings growth will justify the high price. Think early Amazon or Tesla. High risk, potentially high reward.
  • RSI (Relative Strength Index) — RSI scores a stock from 0–100. Above 70 means it's been rising so fast it might be due for a pullback (overbought). Below 30 means it's fallen a lot and could bounce (oversold).
  • MACD — MACD compares two moving averages to show momentum. When the fast line crosses above the slow line, it's a buy signal. Cross below = sell signal. Like two runners — when the faster one pulls ahead, momentum is shifting.