Understanding the concept of Momentum Trading can be very beneficial in your trading.
We have all heard the saying “Buy Low, Sell High.”???? ????
Well, in Momentum Trading you are looking to “Buy High to Sell Higher.” ???? ????
Momentum trading is basically trading movement. The definition of momentum is the greater the price the greater the demand.
Momentum trading can apply to single stocks and the market as a whole.
The more people who buy → the higher the price becomes → the more people want to get involved.
So, buying actually leads to more buying.
Momentum trading is the concept of actually buying high to sell higher.
Everyone usually talks about buying low, selling high.
A momentum trader tries to identify price points where they expect momentum will come into the market.
This could happen because of a short squeeze or new buying interests coming in.
Momentum traders take advantage by purchasing quickly on the way up as momentum comes in.
Oftentimes, this is coupled with higher levels of volume so the trader can sell the stock at an even higher price.
After all, that is a momentum trader’s goal!
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– Derrick Oldensmith
Senior Trader and Managing Supervisor