Momentum Funds

Momentum funds select investments based on trends happening in the market. The type of investment that is often chosen has shown upwards movement in either the price per share or earnings. Managers of momentum funds analyze different securities to see which ones meet the specifications for momentum fund trading before taking action. There is more to this type of fund than simply choosing the proper investment vehicles. The manager of a momentum fund will closely watch the upwards trend to anticipate its peak. The goal is to sell at peak time to avoid loss when the security value begins to fall.

To determine if a security is a good candidate for a momentum fund, a manager will look at two main areas. One is the company issuing the security and how they are performing financially. If a certain company has reported gains of a consistent nature spanning four periods, this can be an indicator of the start of an upwards trend that can be of financial benefit for the investor.

The other thing momentum funds managers look at is the unit price. If it is determined that the conditions of the market will cause a security to go up even for a brief duration it may be decided that the security is to be included in the fund. The goal of the momentum fund manager is to buy while the security is at a low price and hold onto it until the moment its unit price reaches the peak. So, you get an idea of how momentum funds work. They are chosen based on the speculation of upwards movement and sold when the fund manager believes they have reached peak price. This type of fund was very popular in the 90s but is still being used today as a form of investment.

You should not consider trading momentum funds on your own, as it takes years of education and experience to learn this type of trading strategy. Choose a broker or manager who has a long track record of success with this type of fund. And, as any knowledgeable investor will tell you, don’t put all your eggs in one basket. A diversified portfolio is crucial to your success as an investor. You should have a well-balanced mix of short, medium and long term investments that are low, moderate and high risk. Your broker can help you create a portfolio that is balanced but still meets your financial goals.

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