When
done
properly,
momentum
trading
can
produce
very
significant
returns
in
a
relatively
short
period
of
time.
Momentum
trading
is
identifying,
and
holding,
a
fast
rising
(or
falling)
stock
for
a
period
of
time
-
be
in
days,
weeks,
or
months.
In
momentum
trading,
you
are
looking
for
stocks
that
are
trending.
Momentum
traders
use
technical
analysis
to
identify
stocks
that
show
the
characteristics
of
either
an
upward
or
downward
trend
(to
short).
Trends
can
be
either
short,
medium,
or
long
term.
Generally,
in
momentum
trading,
investors
don't
enter
a
trade
unless
a
stock
has
already
started
to
trend,
preferring
instead
to
buy
into
established
trends.
However,
care
is
taken
not
to
enter
a
trend
too
late,
otherwise
you
will
make
very
little,
and
could
even
lose
money.
Of
course,
a
stock
rarely
moves
uniformly
up
or
down,
even
in
a
trend.
It
tends
to
make
smaller
upward
and
downward
movements
within
the
overall
trend.
But
a
stock
can
also
suddenly
go
down,
and
the
momentum
of
movement
(up
or
down)
can
also
fizzle
out.
Trading
in
momentum
shares
is
not
a
'buy
and
hold'
strategy.
Momentum
shares
are
not
identified
using
fundamental
analysis,
which
seeks
to
measure
a
stock's
intrinsic
value.
Momentum
investors
look
at
a
stock's
price,
and
the
volume
traded,
to
see
whether
a
trend
is
occurring,
and
its'
direction.
These
large
movements
in
the
market
are
often
driven
by
large
institutional
investors
buying
or
selling
off
stocks.
A
momentum
trader
will
buy
into
a
trending
stock
either
right
at
the
start
of
the
trend,
or
early
in
the
life
of
the
trend.
They
will
exit
the
trade
preferably
before
the
trend
reverses
-
they
are
not
looking
to
ride
out
a
reversal
like
a
value
investor
might.
In
momentum
trading,
entry
and
exit
points
are
often
determined
beforehand,
at
least
in
some
momentum
systems
that
use
momentum
trading
within
the
context
of
larger
cycles
(and
which
have
a
very
high
success
rate).
Momentum
traders
tend
to
use
the
moving
average
as
an
exit
signal.
Taking
a
short-term
average
of
about
5
days,
and
a
longer-term
average
of
20
days,
when
the
short-term
average
crosses
below
the
longer-term
average,
that
is
a
signal
to
sell
as
it
usually
means
the
stock
is
dropping.
Different
momentum
traders
use
different
periods
of
time
to
measure
the
moving
average,
but
that
is
one
possible
setup.
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