Momentum Trading

In the stock market game, momentum trading can be a winning strategy because it focuses on buying stocks that are already going up fast.  Since the stock market game is often short-term and about making quick gains, momentum trading allows players to capitalize on the excitement and popularity surrounding certain stocks.  By riding the momentum of these stocks, players can potentially earn quick profits and outperform other players in the game.  (Important: momentum trading is NOT a recommended investing strategy to achieve long-term financial goals.)

What is momentum trading?

Imagine you’re on a playground and you’re playing tag with your friends.  Momentum trading is a bit like trying to catch the fastest runner in the game.  Here’s how it works:

Watching the Fast Runners

In the game of tag, you notice that some friends are really fast. They zoom around the playground, and everyone wants to tag them. In the stock market, there are some stocks that are like these fast runners. They’re called “momentum stocks.”

Jumping In at the Right Time

Now, when you’re playing tag, you know that if you want to tag a fast runner, you need to jump into the game at just the right time. You can’t wait too long, or someone else might tag them first. In momentum trading, investors try to jump into buying these fast-moving stocks at the right time, hoping they’ll keep going up.

Riding the Momentum

Once you’ve tagged a fast runner in the game, you keep chasing them as they run around the playground. Similarly, in momentum trading, investors ride the momentum of these fast-moving stocks, hoping they’ll keep going up for a while so they can sell them later for a profit.

Knowing When to Stop

But just like in the game of tag, you have to know when to stop chasing the fast runner. If you keep chasing them for too long, you might get tired and lose. In momentum trading, investors need to know when to sell these stocks before they start to slow down or even go down in value.

So, momentum trading is like trying to catch the fastest runners in a game of tag, jumping in at the right time, riding their momentum, and knowing when to stop chasing them.