Momentum (finance)

Momentum in finance means that things that have been going up tend to keep going up and things that have been going down tend to keep going down. Imagine that you are pushing a ball downhill. Once you get it going, it will keep going until it hits something or runs out of energy. Similarly, once a stock or investment starts to gain value, it often continues to gain value until it reaches a peak.

Momentum investors try to predict which stocks or investments will gain value based on their past performance. They look at things like trends in stock prices, sales figures, and company profits. If they think a stock is likely to continue rising, they might buy it in the hopes of selling it later for a profit.

But momentum also has a downside. Just like the ball rolling downhill might hit a rock and stop, a stock or investment that has been gaining value might suddenly drop. Some investors try to take advantage of this by selling their momentum stocks before they lose too much value.

In summary, momentum in finance means that things that have been going up tend to continue going up and things that have been going down tend to continue going down. It is a way that investors try to predict whether a stock or investment will gain or lose value based on past trends in price and performance. However, it is not always reliable and there is always the risk of sudden drops in value.