We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is a Momentum Trader?

Mary McMahon
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

A momentum trader is a securities trader who takes advantage of market momentum for profits. There are two distinct types of momentum trading, operating in different ways. One hinges on exploiting volatility in response to breaking news, while the other involves engaging in technical analysis to identify over- and undervalued stocks. Both require a high level of skill, as well as a very organized trading strategy to prevent situations where traders get into trouble by exceeding their limits.

In the first sense, a momentum trader acts in response to breaking news. When major news breaks, the market typically becomes volatile in response, even if the news does not have a direct economic impact. People who can enact extremely rapid trades to exploit rises and falls in value can be well positioned to make a profit on the shift in market fortunes. This work requires paying close attention to the news, acting quickly, and being good at predicting market movements.

The other type of momentum trader identifies securities with apparently skewed values. These traders often operate on futures contracts, making arrangements to take advantage of expected falls or rises in value. This type of trading allows people to profit whether the underlying security goes up or down in value; the contract can allow a trader can sell an overvalued stock at a high price when the market value drops, for instance, or buy at a low price when the market value ticks upward.

Momentum trading is suitable for investors of moderate to advanced skill. Beginners can get in trouble with the fast pace and need to be able to predict market shifts effectively and efficiently. One common problem for new momentum traders is panic trades, where the trader is forced into a bad move out of worry about a shift in the market. This can result in a situation where the trader takes a loss, while a more experienced momentum trader would have ridden the panic out and held on to the stocks or waited to buy.

People interested in momentum trading can participate in open outcry trading on the floor of a securities exchange, or trade electronically. The best method depends on the market, the trader's comfort level and experience, and the tactics being used. To trade on the floor, a momentum trader may require sponsorship or the ability to buy a trading seat, depending on how the stock exchange is organized.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

Learn more
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.