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Also called: Momentum investing

What is momentum?

Momentum investing is a strategy that focuses on capturing the short-term growth of an investment by purchasing a security as it grows and selling it before it falls in value.

Momentum investing focuses on short-term growth and has risks. Profits rely on market volatility and optimally timing your transactions. For instance, purchasing a security too late in its growth window will reduce returns. Likewise, selling the security too late can also cause the investor to lose money.

Momentum-based investments tend to be bought and sold within short periods. Depending on tax laws, this may cause the capital gains to be taxed more harshly. There may also be higher fees in selling the security before a certain amount of time has passed.