Stock Splits And Momentum Investing
Most people believe that stock splits are considered to be a bullish signal. The theory says that stocks that split occur because their stock has increased so rapidly that they need to lower their price in order for the average investor to be able to invest into it.
This means that the company should be a pretty strong company and the same momentum that carried them up to that high level before the split will likely push them back up to that level after the split.
It is a good theory and seems to work when you look at stock splits of the past, however just because a stock has just split does not mean that it is a good investment and will make a great return for their investors.
It is still important to factor in other things to determine whether the stock really is a good investment or not. One of bigest indicators to look at is how the stock has actually performed in the past.
With momentum investing a trader attempts to get into stocks that are going up and hold onto them for as long as those stocks continues to go up. How does this apply to stock splits?
Well one thing that I have done is to keep a list of stocks that have just split, especially strong stocks. Then watch the stocks to see if they continue their uptrend.
If it does then it has the potential to be a very profitable trade. And the fact that the stock has just split may also work in my favor.
Stock Splits can be profitable when combined with other investment strategies. That way all the odds can be put in your favor which is always a good thing.
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