The Momentum Investing Strategy: Ride the Wave of Winning Stocks

Are you a day trader looking for a profitable investment strategy? Look no further than momentum investing.

What Is Momentum Investing?

Momentum investing is an investment strategy that involves buying securities that have had strong recent performance and selling those that have had poor performance. The idea is that securities that have recently performed well will continue to do so in the near future. This strategy is based on the idea that trends in the market tend to persist. When a stock reaches new highs, the absence of sellers who have previously lost money makes this strategy even more effective. This imbalance can translate into an acceleration in upward price momentum. Ride the wave!

Momentum Investing Strategies

As a day trader, it’s important to have different ways to make decisions about buying and selling stocks. One popular method is called momentum investing. This means looking at how well a stock has been doing recently and deciding whether to buy or sell based on that information.

There are different ways to use momentum investing. One way is to use technical analysis to find stocks that are doing well and hold onto them for a certain amount of time. Another way is to constantly buy and sell based on how the stock is currently doing.

Another strategy is to look for strong chart patterns and buy the stock when it breaks through a certain level. This can be a good sign that the stock will continue to go up.

Relative strength investing is also a momentum strategy. This means comparing a stock to other stocks or a market index to see if it’s doing better or worse than others. This can help you decide whether to buy or sell.

Here are some other types of momentum strategies:

  1. Time-series momentum: This strategy involves buying stocks that have done well recently and selling those that haven’t.
  2. Cross-sectional momentum: This strategy involves comparing one stock to others and buying the ones that are doing better.
  3. Trend following: This strategy involves buying stocks that are going up in value and selling those that are going down.
  4. Breakout strategy: This strategy involves buying a stock when it breaks through a certain level or selling it when it drops below a certain level.
  5. Mean reversion: This strategy is based on the idea that a stock’s value will eventually return to its average.
  6. Volatility breakout: This strategy involves buying stocks that have a lot of sudden changes in value.

Riding the Momentum: How Incorporating This Strategy Led to Profits With the Tesla Chart

How Do You Trade a Momentum Strategy?

Here are some steps to trade a momentum strategy:

  1. Identify momentum stocks: Look for stocks that have been performing well over a certain period of time, such as the last three to six months. This can be done by looking at stock charts and identifying stocks that have been making new highs or breaking out in relative strength.
  2. Look for strong chart patterns: Identify and confirm the presence of strong chart patterns. A stock that is breaking out to new highs is a good indication of upward momentum.
  3. Monitor for a breakout or set a buy-stop order: Once criteria have been met, place a buy-stop order slightly above the resistance level of the stock. This will ensure that a trade is entered as soon as the stock breaks out to new highs.
  4. Set a stop-loss: To limit risk, set a stop-loss at a level below the support level of the stock. This will help limit losses in case the stock doesn’t continue to move in the expected direction.
  5. Set a take profit: Set a take profit level at a point where the stock is likely to experience resistance or use a trailing stop-loss order. This will help lock in profits as the stock continues to move in the expected direction.
  6. Monitor the stock: Keep an eye on the stock’s price and indicators such as volume, relative strength, and moving averages to confirm the trend and momentum.
  7. Scale in/out: Depending on approach, consider scaling in to the position or scaling out at different price points for increased profitability and risk management.


Some investors argue that momentum investing can be a successful strategy, particularly in markets that are trending upwards. However, it’s important to note that momentum investing also carries some risks. Securities that are showing strong momentum may be overvalued and could potentially experience a correction or a reversal in trend. As a trader, it’s important to keep in mind that any momentum based strategy is not always reliable, and that other factors such as market conditions and fundamental analysis should also be considered before making any investment decisions. Additionally, be aware that the use of buy-stop and stop-loss orders can cause major whipsaw (or account damage) if one doesn’t have proper knowledge and understanding of how to implement them correctly. Trading is a skill that must be mastered before making informed decisions.

And if you liked this blog post, share it with a friend! Or don’t, we don’t really care. But either way, remember, “dangers of watching every tick are twofold: overtrading and increased chances of prematurely liquidating good positions”

To learn more about chart patterns and how to trade them, visit our education section by clicking HERE.

Get new posts delivered straight to your inbox by signing up below:

SetYourStop Blog Request

Enter your name and email to be alerted with new ideas.

Please wait...

Thank you for sign up!

Scroll to Top