Momentum
What is a Momentum Strategy?
Momentum investing is based on the idea that assets that have performed well recently will continue to do so in the near future, and those performing poorly will continue to lag. It’s a trend-following approach.
How It Works
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Identify winners: Find assets like stocks, cryptocurrencies, or ETFs that have delivered strong returns over a set period—such as the past 3, 6, or 12 months.
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Buy winners: Invest your capital in these top-performing assets.
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Avoid or short losers: Stay away from, or even short-sell, assets that have underperformed.
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Rebalance regularly: Periodically review and update your portfolio—whether weekly, monthly, or quarterly—based on the latest momentum rankings.
Why Momentum Works
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Investors often react too slowly or too emotionally to new information, allowing trends to continue.
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Herd mentality can drive prices in the same direction for extended periods.