Momentum

Momentum is the perceived strength behind a price movement. Momentum is often seen in securities with a strong trend. Some traders trade on momentum in anticipation of a sustained trend, usually from other investors who are currenting trading on the trend as well. An example of how momentum works would be oil prices in the upper half of 2008. Despite obvious signs of cracks in the economy, oil prices rose mostly on momentum because commodities in general were doing ok and perceived to do ok in a down market.

Momentum trading can be dangerous, because it is basically chasing a hot thing.

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