IS MOMENTUM INVESTING FOR EVERYONE?
Those who employ momentum investing seek to hold on stocks which continuously rise and unload stocks that tend to decline in the long run. Since its existence in 2009, momentum investing has been one of the most effective trading strategies to say the least. But some analysts believe it is about to become obsolete.
Having said that, do you want to still consider momentum investing? If yes, one can achieve success with this type of trading coupled with time and discipline.
A trader needs to cash in on volatile market trends. Look for stocks that have considerable ground and sell those at its highest prospective return on investment before prices begin to slide. Make the most of ROI. It also helps to become the first to pinpoint new likely trends and purchase them at the lowest possible prices and sell and move on before stocks start to slump.
If you are looking after short-time, profitable gains, momentum investing is perhaps the answer. The possibility of earning more profit escalates over time. For example, you purchase a stock from Company ABC and it increases from $100 to $200 due to impressive car sales. You then sell it at a profit of 100% before a stock price correction.
This trading technique capitalizes on emotional investors, as they capitalize on stock price movements. Studies show emotional traders sell their holdings prematurely when it is about to gain ground. Also, such traders hold onto their stocks for a long time even after losing, hoping it will regain its traction. And they place more importance on the latest research. Looking at these facts, they use rules-based method.
Now, here is the downside: it takes a lot of time, discipline, and effort to do momentum investing, specifically to pinpoint the best stocks and the timing to buy or sell them. Not to mention you need to monitor the markets from time to time to find the best trading opportunities. In simplest terms, finding the best in a swarmed market within a short period of time.
In the case of momentum trading, many are enticed but few can really do it. But, if you still want to take a dive, by all means. Just remember to purchase high and sell higher.