momentum

Definition

The perceived strength behind a price movement. Momentum investors seek to take advantage of upward or downward trends in stock prices or earnings. They believe that these stocks will continue to head in the same direction because of the momentum that is already behind them. The idea relies on the belief that there are a large number of investors in the market who will buy whatever stock is already hot. Momentum investors do not necessarily believe that momentum stocks will do well in the long run, but they do think that in the short run people will continue to buy them as they have in the immediate past. This therefore involves market timing which is very risky.

Use momentum in a sentence

Experienced investors may invest in stocks that seem to have an upward momentum, but it is not often advised for beginners due to the increased risk of this strategy.

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