Top Advantages Of Momentum Investing
Momentum investing involves buying stocks that are trending up and assuming that the stock will continue to go up
. It is an interesting and simple strategy.Trend traders will hold onto the position, just until it starts to turn around or stops going up. Once it does it is time to get out of it.
It is a simple strategy and for this reason most people are ready to write it off and call it a "get rich quick" strategy that will in the long term lose you money. People seem to think that trend traders are the people who get in at the top just before the market crashes.
This is not true. It is proven that stocks which are trending up are more likely to continue that trend in the future. It is true that stocks do tend to get overinflated and crash, but who knows when that will happen. I have seen plenty of stocks that were considered to be overvalued go up 50% in the next 2 months and go up after that. You simply do not know when a stock will turn around so why no hold onto it and keep some stop losses in place just in case.
Here are a few reasons why trend trading can be so successful.
1.No Speculation
Trend traders are not really speculating or assuming something big will happen in the market that will push this stock higher. If the stock is already going up then it is likely to continue. The only chance that you would be taking is that it is going to continue its trend.
2. The Strategy is Simple
One other big advantage of trend trading is just how simple it is. If the stock is going up buy it, if it is going down sell it. That's all there is to it.
Sometimes simplicity is really the best option.
3.You Don't Need to Understand the Fundamentals
One of the many stock tips people will tell you is to check out the company's fundamentals. If a company is fundamentally strong then it is worth buying if not then it isn't. With trend trading it can be a good idea to learn the fundamentals, but you can make money without knowing it.
You don't need to know why the company is going higher; you simply need to understand that it is. You can look at all the hard facts that you want, but sometimes it is just easier to trade what you see rather then what you think.
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