DEFINITION: A metric that provides the rate of change in the value of an asset over a given length of time. Momentum indictors describe how stong or weak any up or down move is. Investors who make buy or sell decisions based primarily on this metric are considered “momentum investors.”
Definition of the term "momentum" in investing.
Momentum is a metric describing an upward trend in the value of an asset over a given length of time. Investors who make buy or sell decisions based primarily on this metric are considered “momentum investors.”
Momentum as an indicator
Many long-term investors use momentum to inform their buy and sell decisions, even if it’s not the primary metric guiding their strategy.
Because it is so clear-cut, momentum can easily be employed as a trigger with simple rules. For example:
Graphic explaining the user of a momentum trigger in stock market investing.
Momentum investors use rules like these to govern their decision-making.
What is good momentum?
There is no industry-wide threshold for momentum; each investor must determine an appropriate level for the target portfolio.
Likewise, the time interval to determine momentum is up to each investor. Momentum is used most often by long-term investors (those who hold positions for many months at a time, at least), and momentum is calculated over the last calendar year.
Momentum may also fluctuate with market conditions; in a bear market, the minimum % growth that constitutes momentum may be lower than in more favorable market conditions.
How Finiac defines momentum
Assets in Finiac are defined as having momentum if they have demonstrated 10% growth over the last year.
When you filter a portfolio or collection to show only positions with momentum, you’re asking to see only those components whose value has grown at least 10% in the previous 1 year.