Should You Chase Momentum Stocks?

I have always been amazed by the line: “If you are already in it, keep raising your stops. If you are not, don’t chase”. Psychologically there is a difference as in the first case you operate from the position of strength, assuming that you already locked in some partial profits. Technically, there is no difference between the two approaches, as long as you use stops and go for high reward trades. There is a reason momentum stocks are popular among short-term traders. Momentum stocks tend to move in a wide range. When you risk 50 cents to make $2.00, you can afford to be wrong 70% of the time and still end up with a profit.

Positive Expectancy = 30%*2.00 – 70%*0.50 = 0.25