Momentum Trading

Momentum strategies seek to take profit from those securities which are trending and backed by high volume. In simple words, buy high and sell higher is the mantra for this strategy. This can be achieved by taking positions in a stock that is going up or down, and then holding this position until the security shows signs of reversal. Momentum traders may hold their positions for a few seconds, minutes, hours, months or even a couple of years, depending on how quickly the stock changes its direction.

Momentum trading carries a high degree of volatility compared to most other strategies. It is important to time the buys and sells correctly to avoid significant losses. Momentum traders use stop losses, portfolio diversifications, and other risk management techniques to minimize losses.