Financial Word of the Day: Momentum Strategy
- Larry Jones
- 6 days ago
- 2 min read
Momentum Strategy is a simple but powerful investing concept built on one core idea:assets that have been performing well tend to keep performing well—at least for a period of time.
Instead of trying to predict what might do well next, a momentum strategy focuses on what’s already working and rides that trend until the momentum fades.
This approach isn’t flashy. It’s disciplined. And when used wisely, it can help investors avoid emotional decision-making and align their money with real market behavior.
What Is a Momentum Strategy?
A momentum strategy involves investing in assets—stocks, ETFs, sectors, or even entire markets—that are showing strong recent performance relative to others.
Momentum investors typically:
Buy assets that are trending upward
Avoid or sell assets that are lagging
Rebalance periodically based on performance metrics
The key word here is trend. Momentum strategies don’t care much about headlines, predictions, or opinions. They care about direction.
If the trend is up, momentum says: stay on the train.
Why Momentum Strategy Matters
Most investors lose money not because they lack intelligence—but because they fight the market.
Momentum strategies help counter some common investing mistakes:
Holding onto losers too long
Selling winners too early
Letting fear or hype drive decisions
Guessing tops and bottoms
Momentum replaces guesswork with structure. It gives you a rules-based way to say, “I’m going where the strength is.”
It’s not about being right. It’s about being aligned.
A Simple Example
Imagine two ETFs:
ETF A has steadily climbed over the past 6–12 months
ETF B has been flat or declining over the same period
A momentum strategy would favor ETF A—not because it’s “better,” but because it’s demonstrating strength right now.
When that strength fades and another asset begins to outperform, the strategy shifts accordingly.
No drama. No loyalty. Just direction.
How It Might Sound in Real Life
You might hear someone say: “I’m not married to any one investment—I use a momentum strategy. I stick with what’s moving and step aside when it’s not.”
Or: “Instead of guessing what will rebound, I focus on what already has momentum.”
That’s momentum thinking in plain English.
A Word of Caution
Momentum strategies are powerful—but they’re not magic.
They work best when:
Paired with diversification
Applied consistently
Used with clear rules for entry and exit
Momentum doesn’t eliminate risk. It manages behavior. And behavior is where most financial damage happens.
The Big Takeaway
Momentum Strategy reminds us of an important financial truth: Money tends to flow where strength already exists.
Instead of fighting that reality, momentum invites you to cooperate with it.
You don’t have to predict the future.You just have to pay attention to direction—and respond wisely.
And in a world full of noise, that kind of clarity can be a serious financial advantage.
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