# Momentum stocks: what they are and how to trade them

> Momentum stocks are recent winners that tend to keep winning for a while. See what the research says, how momentum crashes, and how to trade it with rules.

Written by [Tactfolio research team](https://tactfolio.com/about/editorial-policy.md), published 2026-10-16, updated 2026-10-16.

Momentum stocks are stocks whose prices have risen more than most other stocks over the past few months to a year. Momentum investing buys these recent winners, on the idea that they tend to keep doing well for a while. Research going back decades supports the pattern, but it can reverse suddenly and painfully.

## Key points

- Momentum is usually measured as a stock's return over the past 3 to 12 months.
- In a well-known 1993 study, past winners beat past losers by about 1% a month in US stocks, before trading costs ([Jegadeesh and Titman](https://doi.org/10.1111/j.1540-6261.1993.tb04702.x)).
- **Relative momentum** compares assets with each other. **Absolute momentum** asks whether an asset beat cash.
- Momentum can crash. In spring 2009, past losers jumped far more than past winners ([Daniel and Moskowitz](https://doi.org/10.1016/j.jfineco.2015.12.002)).
- Many rules-based strategies, such as Dual Momentum, apply momentum to whole funds instead of single stocks.

## What makes a stock a momentum stock?

A momentum stock is one that has outrun most other stocks over a set lookback, such as the past 12 months. The **lookback** is how far back you measure.

Here is a simple example. Over the past 12 months:

| Stock | 12-month return |
| --- | --- |
| A | +60% |
| B | +15% |
| C | +5% |
| D | −20% |

A momentum investor ranks the stocks by return. A is the strongest, so it is the momentum pick. D is the weakest.

Many studies measure momentum over the past 12 months but skip the most recent month. Very short-term winners tend to slip back a little, so leaving out the last month makes the signal cleaner. The momentum factor in [Kenneth French's data library](https://mba.tuck.dartmouth.edu/pages/faculty/ken.french/Data_Library/det_mom_factor.html) is built this way, with monthly data back to 1927.

## Why does momentum happen?

Nobody knows for sure. Researchers have a few competing ideas:

- **Slow reaction.** Investors react to good news slowly. Prices keep drifting up as more people catch on.
- **Herding.** Rising prices draw in buyers who chase trends. That pushes prices further for a time.
- **Risk.** Momentum stocks may carry hidden risks, such as crash risk, and their extra return pays for that.

Each idea fits some of the evidence. None explains all of it. That is worth remembering, because a pattern without a firm reason can weaken over time.

## What does the research say?

The evidence for momentum is broad. Jegadeesh and Titman (1993) found it in US stocks from 1965 to 1989. Asness, Moskowitz and Pedersen (2013) found it in stocks in several countries, and also in bonds, currencies and commodities ([Journal of Finance](https://doi.org/10.1111/jofi.12021)).

The research also shows the costs. Momentum strategies trade often, so fees and taxes eat into returns. And the extra return comes in uneven bursts, with long dry spells.

## When momentum crashes

Momentum's worst losses tend to come right after a market crash, when the market turns back up. In spring 2009, the stocks that had fallen most during the crisis bounced back far harder than the recent winners. Momentum strategies that bet against the losers lost heavily ([Daniel and Moskowitz](https://doi.org/10.1016/j.jfineco.2015.12.002)).

The reason is simple. After a long fall, last year's winners are often the "safe" stocks. When fear lifts, the beaten-down stocks lead. A momentum investor is holding the wrong ones at exactly the wrong time.

## Relative vs absolute momentum

There are two kinds of momentum. Many strategies use both.

| | Relative momentum | Absolute momentum |
| --- | --- | --- |
| Question it asks | Which asset rose the most? | Did this asset beat cash? |
| Compares | Assets with each other | An asset with Treasury bills or zero |
| Can it pick cash? | No, it always picks the strongest | Yes, it steps aside when returns are weak |
| Main risk | Holding the "best" of a falling group | Reacting late to sudden crashes |

Absolute momentum is a close cousin of [trend following](https://tactfolio.com/learn/trend-following.md). Relative momentum applied to industry funds is called [sector rotation](https://tactfolio.com/learn/sector-rotation.md).

Gary Antonacci combined the two in his [Dual Momentum](https://tactfolio.com/strategies/dual-momentum.md) strategy. It holds the stronger of US and foreign stocks, but only while stocks have beaten Treasury bills over the past year. Otherwise it holds bonds.

## How to trade momentum stocks with rules

Momentum works best as a written rule, not a gut feeling about one hot stock. A basic rules-based approach has five steps:

1. **Pick a list** of stocks or funds to choose from.
2. **Measure** each one's return over a set lookback, such as 12 months.
3. **Rank** them and keep the top few.
4. **Check again** on a set schedule, such as monthly, and swap out the ones that fell behind.
5. **Add a safety rule**, such as moving to bonds or cash when the whole market is falling.

Our guide to [momentum strategies](https://tactfolio.com/learn/momentum-strategy.md) compares the main types and the published rules. Fund investors can also buy a momentum ETF. The iShares MSCI USA Momentum Factor ETF (MTUM) holds US stocks with strong recent momentum and resets its list about twice a year ([iShares](https://www.ishares.com/us/products/251614/ishares-msci-usa-momentum-factor-etf)).

## Common mistakes

- Buying one stock because it [gapped up](https://tactfolio.com/learn/stock-gap.md) on news this week. That is chasing, not a momentum rule.
- Ignoring trading costs. A rule that trades every week can lose much of its edge to costs and taxes. Taxes work differently inside an [IRA or 401(k)](https://tactfolio.com/learn/ira-vs-401k.md).
- Testing dozens of lookbacks and keeping the best one. That often finds luck, not a pattern ([why past results mislead](https://tactfolio.com/docs/concepts/why-past-results-mislead.md)).
- Having no plan for a crash. Momentum can fall hard when the market turns.
- Confusing momentum with RSI. RSI measures short-term overbought and oversold readings, which is a different idea.

## Try it on Tactfolio

Tactfolio's builder has a Rank block made for momentum. It scores assets by their past returns and keeps the leaders. The [Papa Bear Portfolio](https://tactfolio.com/strategies/papa-bear-portfolio.md) uses it to hold the three strongest of 13 asset classes. [Dual Momentum](https://tactfolio.com/strategies/dual-momentum.md) adds a cash test on top. Open either one to read the rules and see the hypothetical backtest, crashes included. The [common patterns guide](https://tactfolio.com/docs/patterns.md) shows how to build your own in the [strategy builder](https://tactfolio.com/builder). Momentum often shows up in [commodities](https://tactfolio.com/learn/commodities-explained.md) too, and the [S&P 500](https://tactfolio.com/learn/sp500-index.md) is the usual benchmark for momentum stocks.

## Common questions

### What is momentum investing?

Momentum investing means buying assets that have risen the most recently and avoiding those that have fallen the most. It assumes recent trends tend to continue for a while. It is usually done with set rules and a regular schedule.

### Is momentum investing the same as day trading?

No. Day traders buy and sell within the same day. Momentum investors usually measure returns over months and hold for weeks or months. A monthly momentum rule might trade only a few times a year.

### What is the best lookback for momentum?

Research most often uses 12 months, skipping the latest month, but 3 and 6 months are common too. No single number is best in every period. Blending a few lookbacks makes a rule less dependent on any one choice.

### Does momentum work for ETFs?

Studies have found momentum across asset classes such as stocks, bonds and commodities, not only single stocks. Many tactical strategies, such as Dual Momentum, rank ETFs by momentum. Results vary a lot by period.

### Why do momentum stocks crash?

Momentum stocks often crash when the market rebounds sharply after a big fall. The stocks that fell most bounce back fastest, while recent winners lag. In spring 2009, this caused some of momentum's worst losses on record.

## Put it into practice

- [Dual momentum bot](https://tactfolio.com/bots/dual-momentum-bot.md): Run Gary Antonacci’s dual momentum rules as a bot: SPY, VEU or AGG, checked once a month.
- [QMOM: Alpha Architect U.S. Quantitative Momentum ETF](https://tactfolio.com/etf/qmom.md): What QMOM holds, its 0.28% yearly fee, returns by year, its worst drop, and which Tactfolio strategies hold it.
- [IMOM: Alpha Architect International Quantitative Momentum ETF](https://tactfolio.com/etf/imom.md): What IMOM holds, its 0.38% yearly fee, returns by year, its worst drop, and which Tactfolio strategies hold it.
- [Backtesting](https://tactfolio.com/backtesting.md): Free backtesting software for stocks, ETFs, and crypto perps.
- [MTUM: iShares MSCI USA Momentum Factor ETF](https://tactfolio.com/etf/mtum.md): What MTUM holds, its 0.15% yearly fee, returns by year, its worst drop, and which Tactfolio strategies hold it.

## Sources

- [Returns to buying winners and selling losers: implications for stock market efficiency](https://doi.org/10.1111/j.1540-6261.1993.tb04702.x), Narasimhan Jegadeesh and Sheridan Titman, Journal of Finance, 1993, accessed 2026-10-16
- [Value and momentum everywhere](https://doi.org/10.1111/jofi.12021), Clifford Asness, Tobias Moskowitz and Lasse Pedersen, Journal of Finance, 2013, accessed 2026-10-16
- [Momentum crashes](https://doi.org/10.1016/j.jfineco.2015.12.002), Kent Daniel and Tobias Moskowitz, Journal of Financial Economics, 2016, accessed 2026-10-16
- [Detail for monthly momentum factor](https://mba.tuck.dartmouth.edu/pages/faculty/ken.french/Data_Library/det_mom_factor.html), Kenneth R. French Data Library, accessed 2026-10-16
- [iShares MSCI USA Momentum Factor ETF (MTUM)](https://www.ishares.com/us/products/251614/ishares-msci-usa-momentum-factor-etf), BlackRock, accessed 2026-10-16