Stock Market Glossary

Momentum strategy

Investment style that relies on the continuation of existing price movements.

In brief: Investment style that relies on the continuation of existing price movements.

Meaning in practice

Momentum strategies buy the strong stocks and avoid the weak ones – proven to be a robust factor over many markets and decades. But they suffer from sharp trend changes because then the winners become losers.

Context for investors and traders

For traders, this term is most useful when preparing and executing an order. Its meaning depends on the venue, liquidity, time frame and order type. A single reading is not a reliable buy or sell decision.

How to use this in practice

In practice, the term should be linked to a specific trading plan: entry, exit, position size and costs belong together. In short time frames, spread, slippage and delayed execution can quickly outweigh the theoretical benefit of an observation.

What to keep in mind

Write down which observation confirms or invalidates your assumption before trading. This keeps the term a decision-making tool rather than a retrospective justification for risk already taken.

What does Momentum strategy mean in simple terms?

Investment style that relies on the continuation of existing price movements.

When is this term relevant to investors?

Assess the term together with price, costs, position size and a predefined loss limit. That turns a market observation into a traceable framework rather than an automatic trading rule.

What should I check before acting on Momentum strategy?

Write down which observation confirms or invalidates your assumption before trading. This keeps the term a decision-making tool rather than a retrospective justification for risk already taken.

← Back to the glossary