What does market momentum mean?

A momentum trader see's the increase rate in stock price, earnings, and/ or revenues. The trader will repeatedly take a long or short position in the stock in hope that its momentum will continue in either an upward or downward course. This approach relies on short-term movements in a stock's price rather than essential value. This technique in which the trader buy and sell according to the strength of price trends, is similar to the momentum in physics, where mass is multiplied by velocity to determine the probability of the course of the object.

For example, take the oil and energy sector in the mid-2008. Based on its 12 week and 24 week price performance, it was constantly ranked as one of the top sectors using the metrics, even while it was failing. For the reason that the gains were so large in the first part of the 12 weeks or 24 weeks period, that even a large fall back in stock prices over a period of many weeks got lost within the large profits.

To purse stock with market momentum you have to be subjective towards stocks like the index towards stocks to magnitude. The index ranks the 1,000 biggest U.S. stocks by relative strength each quarter and holds the top 100. Look for trending stock that move 6 5%, relative to the NASDAQ.