Momentum trading is a strategy where traders buy stocks showing strong upward movement or sell stocks showing strong downward movement. The idea is to ride the trend while momentum lasts.
Momentum is identified using price movement, volume, and indicators like RSI or moving averages. High volume confirms strength behind the move.
Momentum trading works best in trending markets. In sideways markets, false signals are common.
Traders must exit quickly when momentum weakens. Discipline and stop loss usage are essential for this strategy.
« Back to Glossary Index