This year, I have found myself breaking some of the investing rules I have treated as sacred since I first stepped into finance almost three decades ago.
To be clear, the bulk of my savings is still managed in the way I have always believed makes most sense: investing for the long term, holding assets for years rather than trying to trade in and out, and spreading risk across a broad mix of investments.
I even founded a company called Boring Money, which rather gives away my usual philosophy. Sensible, steady and unshowy is very much my natural territory. But alongside that cautious core, I have allowed myself a more adventurous side pot. And, much as it pains me to say it, that punt has been working.
So far this year, that separate pot has made me more than £9,000 using an approach known as momentum trading.
In simple terms, momentum trading means buying investments that are already rising strongly and continuing to climb, then selling in the hope of banking a quick profit before the enthusiasm runs out.
No one can reliably pick the perfect moment to buy or sell, but the idea is to catch enough of the upward move, enjoy the gains while they last, and step away before the momentum turns.
A useful way to picture it is as a train leaving a station. It gathers speed as it moves off, and when it begins to stop, it does not halt immediately; it gradually slows. Similar patterns can appear in parts of the financial markets, and traders try to use that movement to their advantage.
Of course, it is a risky game. Market timing is famously hard to get right. But right now, it feels a little more straightforward than usual because of the sheer excitement running through markets. There are still pullbacks from time to time, but the broader direction has kept pushing higher, helped in part by social media buzz and investor enthusiasm.
My bit on the side pot has made me more than £9,000 this year after deploying a strategy called momentum trading, writes Holly Mackay
This year, markets are running hot and worrying better mathematicians and economists than me. The share prices of top US tech stocks such as Nvidia, Alphabet and Meta have had a wonderful run for years.
Semiconductor companies have been booming. The US already makes up over half the value of stock markets around the globe – yet continues to grow. And shares in Elon Musk’s SpaceX recently went public at a bonkers valuation.
One strategy I use is to look out for a popular share or index showing momentum that has just seen a fall of around 5 per cent. I jump in while the price has dipped and invest, wait until I’ve enjoyed a 5 per cent return, then sell and take profits. On occasion I’ve done this on repeat with the same volatile asset.
I use an investment platform that does not charge for trading shares, so I am not losing chunks of my profits to fees. Platforms that operate in this way include Trading212, Freetrade and InvestEngine.
When valuations are continuing to rise, it’s tempting to hold on for even more. But I keep banking profits as I go and selling out pretty quickly. That way I won’t get too stung if there’s a sharp downturn.
For example, I bought shares in SpaceX ahead of its launch on to the stock exchange. I think SpaceX is overvalued, but for momentum investing that’s not what matters.
My view is not important. What does matter is that I was confident that other investors would be hungrily buying shares to get in on the latest trend and that would push the price up, at least in the short term, so I could sell my shares for more than I paid for them and bank some profits.
Momentum theory can also be fuelled by what is rather brutally referred to as the Bigger Fool theory. This is that all you need to make money is for there to be a bigger fool than you waiting in the wings to buy at a higher price.
I sold my SpaceX shares early, before much bigger investors did the same thing. I took a profit of more than £2,000 in a few days, then ran for the hills.
I will consider doing something similar when AI giant Anthropic launches on the stock exchange.
So I trade. It’s my naughty secret. But I do it minimally and with respect. Momentum is powerful. On the up it’s amazing. But when it turns, it hurts
I have also traded Micron Technology, buying high and selling higher as explosive AI demand drove this stock up. Oil too. The price has been jumping around like a yo-yo against an uncertain geopolitical backdrop. And the healthcare sector is showing strong momentum, with returns fuelled by anti-obesity drugs and other pharma.
Momentum presents opportunities for more confident investors. Rather than ignore these and preach abstinence, I’d rather suggest some vital rules of engagement.
This is not a long-term strategy – it’s speculation, and certainly not for beginners. It should be a small bit on the side, not the main event. Don’t do it if losing the money would cause you financial stress.
Set strict limits on when to sell before you get emotionally involved. Take any profits quickly. Don’t be greedy. Read up on ‘limit orders’ and ‘stop losses’. This is where you set price limits to avoid uncapped losses and stopping you from getting too greedy.
Momentum trading tends to work when markets are rising overall – at other times it’s a different story. At the moment we’re in such a time, but it won’t last for ever.
The MSCI World Momentum Index (a collection of the world’s winning shares of today) is up around 35 per cent in the past three months, more than double the standard World Index which is up by nearer 14 per cent.
So I trade. It’s my naughty secret. But I do it minimally and with respect. I have never got over seeing a suited man sobbing painfully on the steps of the Australian Stock Exchange in 1999 as markets crashed around him. Momentum is powerful. On the up it’s amazing. But when it turns, it hurts.
