Martin J.Pring – How to Use Short-Term Momentum to Profit from Long-Term Price Move

On paper, momentum investing seems less like an investing strategy and more like a knee-jerk reaction to market information. The idea of selling losers and buying winners is seductive, but it flies in the face of the tried and true Wall Street adage, “buy low, sell high.”KEY TAKEAWAYS

• Momentum investing is a trading strategy in which investors buy securities that are rising and sell them when they look to have peaked.
• The goal is to work with volatility by finding buying opportunities in short-term uptrends and then sell when the securities start to lose momentum.
• Then, the investor takes the cash and looks for the next short-term uptrend, or buying opportunity, and repeats the process.
• Skilled traders understand when to enter into a position, how long to hold it for, and when to exit; they can also react to short-term, news-driven spikes or selloffs.
• Risks of momentum trading include moving into a position too early, closing out too late, and getting distracted and missing key trends and technical deviations.

The Father of Momentum Investing

Driehaus believed in selling the losers and letting the winners ride while re-investing the money from the losers in other stocks that were beginning to boil. Many of the techniques he used became the basics of what is now called momentum investing.

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