Momentum

Momentum describes the velocity and persistence of price movement, stocks with strong momentum tend to continue moving in the same direction longer than pure randomness would predict. Academic research (Jegadeesh and Titman, 1993) confirmed that stocks that have outperformed over the past 6-12 months tend to continue outperforming over the next several months, making momentum one of the best-documented market anomalies. Technical momentum is measured by indicators like RSI, MACD, and Rate of Change, each capturing slightly different aspects of how quickly and strongly price is moving. Momentum can weaken without price reversing, this fading momentum is often visible in divergences where price makes new highs but momentum indicators do not. Portfolio strategies based on momentum, buying recent winners and avoiding recent losers, have historically outperformed in equities but are subject to sharp reversals during momentum crashes.