Introduction to Momentum Investing

Learn about the momentum investing strategy used by investors to capitalize on the continuance of existing trends in the market.

Momentum in financial terms refers to the tendency of stock prices to continue moving in the same direction—either up or down—based on the momentum formula. Investors often use momentum analysis to gauge market trends and make informed decisions.

Technical analysis evaluates securities by examining statistical trends and historical data, focusing on charts and patterns to predict future price movements. Key tools include the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD), which help identify momentum and trends.

The Moving Average Convergence Divergence (MACD) is a versatile and widely used technical indicator that helps investors identify trends, momentum shifts, and potential entry or exit points in financial markets.

Bollinger Bands are a technical analysis tool used in short-term trading, consisting of a 20-period simple moving average with two standard deviations plotted above and below it. It assists with analyzing volatility and identifies potential entry and exit points by viewing band width, overbought/oversold conditions, and trend confirmations.

The Average Directional Index (ADX) and Directional Movement Index (DMI) are technical indicators developed by J. Welles Wilder Jr. to assess the strength and direction of market trends. ADX measures overall trend strength, while DMI+ and DMI- indicate bullish and bearish momentum respectively, helping investors refine their entry and exit strategies.