span yields average returns of 1% per
class="cap">T he month for the 3 to12 months
strategy of trading following a given trigger event
momentum stocks may not be the that signals when to buy the
most popular method around, but stock. Their first report was
it’s been proven effective. If published in 1993 by the American
you’re willing to pick stocks Finance Association and another
based on a given set of report that confirmed their
parameters and have a good sense earlier research was published in
of timing related to the markets, the Journal of Finance
momentum stocks are something you
The benefits of trading
should look into. momentum stocks
What it are momentum stocks?
The first is profitability.
Momentum investing is the most Statistics show trading momentum
difficult to define of all the stocks is a sound and profitable
common trading strategies, but strategy provided you do your
simply put, it’s based on looking research and watch your
for companies whose stocks have timing.
been getting stronger over the
Another advantage for some is
past 3 months to a year. The rule that the system doesn’t require
here is “buy high, sell absolute accuracy when picking
higher.”
stocks. Instead, momentum
Why people choose momentum investors look for large reward
investing
to risk ratios. For each stock
Investing in momentum stocks that loses a small amount, they
is simply a proven-effective find at least one if not several
strategy. The two people credited that brings in a 50% or higher
with defining momentum investing, profit.
Narasimhan Jegadeesh and Sheridan
Relative simplicity is another
Titman, showed this strategy benefit of this strategy. Most
trading systems require an
Another complaint against the
enormous amount of momentum trading is that
self-discipline, which many economists can’t seem to figure
people just don’t have. The out exactly how this strategy
system of trading momentum stocks works, which makes it seem like
is based completely on concrete it’s based on nothing but dumb
data that’s easy to find, so your luck. Some economists believe it
emotions won’t take you off works because the high returns
course.
offset the risk, while others
Although many people presume think it’s a case of smart
the turnover in this strategy investors taking advantage of the
would be extremely high, but in mistakes of other investors, such
most cases it really isn’t as overreaction to hot
particularly bad. Average stocks.
turnover seems to be around 90%
Trading momentum stocks is a
and while high, it’s still lower sound strategy that, while
than with certain other riskier than some, can provide
strategies.
excellent returns for those who
The downsides of trading know how to identify momentum
momentum stocks
stock accurately and can get
Momentum investors don’t buy their timing
stocks to hold. The stocks they right.
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