Some investors use a
momentum
investing
strategy and seek stocks largely because they
have been rising in price, rather than because of good longer-term
fundamentals,
such as the growth and dividend potential of the company that
has issued the stock. The principle resembles the law of physics
that says a body in motion is likely to remain in motion unless
acted upon by an outside force.
Momentum
investors chart changes in price and volume patterns in hopes
of anticipating when a stock may be approaching a top or hitting
a bottom. Hitting a new high may mean the stock is
overbought
and could begin to lose momentum. Conversely, hitting a bottom
may mean the stock is
oversold
and might begin to recover.
Like any strategy whose success depends on
making a decision at the right time, momentum investing requires
regular attention. Positive results could prove to be elusive,
particularly in relatively
volatile
markets when sustainable price trends are either absent or not
easily identified.
Day trading
Day trading is another short-term strategy where timing is crucial. When you day trade, you buy and sell rapidly to take advantage of short-term price changes. However, research shows that the majority of individual day traders — some experts say 70% or more — end up net losers.
