Momentum Strategy for Stocks

A look at the statistics shows: "Stocks that have delivered the highest returns in recent months or years tend to achieve above-average gains in the near future as well". With this stock strategy, you can bet on momentum.

 

The most important concepts in the momentum strategy for stocks

• With the momentum strategy, you bet on the highest-performing stocks of the recent past, meaning you select the stocks that were successful in the last period.
• True to the motto "The trend is your friend.", you go with the securities trend and hope that stocks and securities that have risen in the past will continue to rise in the future.

 

Advantages of the momentum strategy 

• Relatively simple strategy: Using simple technical indicators, you can identify the trend of various stocks and select the best ones.
• Transaction costs remain manageable: Since the selected stocks are not exchanged too frequently (review perhaps every 6 or 12 months), transaction costs remain within limits.

 

Disadvantages of the momentum strategy 

• Momentum strategy with individual stocks requires a large amount of capital in order to spread the risk as broadly as possible, making it barely feasible for private investors. ETFs, for example, can provide a remedy.
• Risk of price correction: Stocks that have performed particularly well in recent months may already be overpriced and lead to a price correction.
• Risk: In the event of price crashes, momentum stocks are often hit particularly hard.

 

 

Sources and interesting links

1. fairvalue-magazin.de - Momentum strategy – Yesterday's winners are tomorrow's champions
2. magazin.comdirect.de - What is the momentum strategy?
3. biallo.de - Momentum strategy: Returns with winning stocks

 

Do you have experience with the momentum strategy? Do you invest in individual stocks or in ETFs or funds? Feel free to leave a comment.

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