What is a momentum stock?

A momentum stock is when it appears the security is rising at a rapid pace in a small amount of time. The primary purpose is to make money in a short period (think the meme stock craze).

• Investors will look at a few signals and catalysts:
• The number of shares traded daily.
• Positive forecasts.
• Balance sheets should prove the company is expanding at a substantial rate.
• Strong corporate earnings.
• Shares are green while the major indices are sliding.

But, as they soar, there is a great chance that the momentum stock could crash as traders sell when it looks like the investment may have peaked.

Here is also a tip: Try to avoid buying stocks that are only worth a few bucks. It is rare to strike the lottery with a stock that trades $0.89 one day and then $11 the next.