Momentum
The tendency of recent winners to keep outperforming for a while — measured as return over a trailing window.
Formula
Momentum = Price ÷ Price N periods ago − 1
How to read it
One of the most documented effects in markets, and one of the most prone to sudden reversals.
How to use it
The basis of trend-following and of relative-strength stock selection.
Limitations
Momentum crashes — sharp reversals — tend to come after market bottoms.
Also called: momentum.