Imagine a train thundering along at 200 kilometers per hour. It takes an enormous amount of energy to get the train up to that speed, but once it has momentum, it is very difficult to stop. This is often how the stock market works as well. Momentum investors jump on the stock train while it is at top speed, and try to jump off right before it begins to brake.
While a value investor (like Warren Buffett) tries to find cheap companies that no one else wants, the momentum investor cares zero about whether the price is too high. Their philosophy is simple: Buy high, and sell even higher!
In the momentum strategy, market psychology is often the invisible force. When a stock begins to rise sharply, it catches the attention of the media, retail investors, and large funds. More people want to buy the hot stock, which pushes the price even higher. This creates a self-reinforcing upward spiral until it suddenly stops.
Momentum investors often use technical analysis and charts to find companies. They look for stocks that have just broken through their previous price peaks (all-time high), or companies that are rising much more than the general stock market index.