Momentum Investing in Australia 2026: Strategies, Trends & Risks

Momentum investing is a strategy based on the idea that assets which have performed well recently will continue to do so in the near future, while those that have performed poorly are likely to keep underperforming. Rather than focusing on a company’s underlying value, momentum investors look for trends in price movements and aim to ride those trends for as long as they last.

In practice, this means buying shares or other assets that are rising in price and selling those that are falling. The timeframes can vary: some investors hold positions for just a few days or weeks, while others may stick with a trend for several months.

How Momentum Investing Works

• Trend following: Investors identify assets with strong recent price movements and enter positions in the direction of the trend.
• Technical analysis: Tools such as moving averages, the relative strength index (RSI), and trading volume are often used to spot momentum opportunities.
• Behavioural factors: Momentum investing relies on the idea that investor psychology—such as fear of missing out or herd behaviour—can push prices further in the direction of the trend.

For Australians, momentum strategies can be applied to ASX-listed shares, exchange-traded funds (ETFs), or international markets accessed through online brokers.

Several factors are contributing to the renewed interest in momentum investing among Australian investors this year:

• Market volatility: Ongoing shifts in the Australian and global economies are creating strong trends in certain sectors and stocks.
• Advances in trading technology: More brokers now offer tools that help identify momentum opportunities, making the strategy more accessible to everyday investors.
• Growth of ETFs: The availability of Australian and global momentum-focused ETFs allows investors to access diversified portfolios that follow momentum strategies.
• Changing investor behaviour: A new wave of retail investors is entering the market, many of whom are attracted to strategies that can potentially deliver returns in both rising and falling markets.

For example, sectors such as technology, renewable energy, and resources have seen periods of strong price movements in recent months, drawing the attention of momentum traders. However, these trends can change quickly, and not all momentum trades result in profits.

There are several ways to approach momentum investing, each with its own level of complexity and risk:

1. Direct Stock Selection

Some investors use technical analysis to select individual ASX-listed shares that are showing strong upward or downward trends. This approach requires regular monitoring of price charts and indicators, as well as discipline in setting entry and exit points.

2. Momentum ETFs

Momentum-focused ETFs track baskets of shares that meet certain momentum criteria. These funds offer a rules-based approach and can provide exposure to a range of sectors or markets. They may be suitable for investors who want to follow momentum trends without picking individual stocks.

3. Systematic Trading

Some investors use automated trading systems or algorithms to identify and act on momentum signals. While this approach can remove some of the emotion from trading, it also requires a solid understanding of the underlying strategies and risks.

While momentum investing can offer opportunities for profit, it also comes with significant risks. It’s important to understand these before committing capital to this strategy.

Sharp Reversals

Trends can end suddenly, especially around major news events, company announcements, or changes in economic policy. Prices that have been rising quickly can just as easily fall, leading to potential losses for those who enter late.

Chasing Hype

Jumping into a trend after it has already gained significant attention can mean buying at elevated prices. If the trend reverses, losses can mount quickly.

Overtrading and Costs

Momentum strategies often involve frequent buying and selling, which can lead to higher brokerage fees and reduce overall returns, especially for smaller portfolios.

Tax Considerations

In Australia, profits from short-term trades are generally taxed at your marginal rate. This can reduce the net returns from active momentum trading, particularly if positions are held for less than a year.

Emotional Decision-Making

Momentum investing can be psychologically challenging. It’s easy to get caught up in market excitement or panic during reversals. Successful momentum investors typically set clear rules for entering and exiting trades and stick to them regardless of market noise.

If you’re considering momentum investing in 2026, here are some practical steps to help you approach it thoughtfully:

1. Research and Education

Take the time to understand how momentum strategies work and the tools used to identify trends. Learn about technical indicators and how to interpret price charts.

2. Start Small or Use Paper Trading

Before committing significant capital, consider testing your strategy with a small allocation or through paper trading (simulated trades). This allows you to gain experience without risking real money.

3. Explore Momentum ETFs

Look into ASX-listed or global momentum ETFs as a way to gain diversified exposure to momentum strategies. These funds can offer a more hands-off approach compared to picking individual stocks.

4. Monitor Market Conditions

Momentum thrives in markets with clear trends. Stay informed about economic developments, Reserve Bank of Australia (RBA) policy changes, and sector news that could impact price movements.

5. Set Clear Rules and Limits

Decide in advance how you will enter and exit trades, and use stop-loss orders to help manage risk. Be disciplined about position sizing to avoid large losses from a single trade.

6. Review Performance Regularly

Track your trades and review your performance over time. This helps you identify what’s working, what isn’t, and whether your strategy needs adjustment.

Momentum investing can add a dynamic element to your portfolio, but it’s not suitable for everyone. It requires regular monitoring, a willingness to act quickly, and the discipline to stick to your rules. For those comfortable with these demands, momentum strategies can offer opportunities in both rising and falling markets.

However, it’s important to remember that no strategy is foolproof. Trends can reverse unexpectedly, and past performance is not a guarantee of future results. Consider your own risk tolerance, investment goals, and the time you can commit before deciding if momentum investing is a good fit for your portfolio.

Momentum investing is attracting renewed interest in Australia for 2026, thanks to changing market conditions and greater access to trading tools. By understanding how momentum works, being aware of the risks, and approaching the strategy with discipline, investors can potentially benefit from market trends—while avoiding some of the common pitfalls.

For more information on trading costs and other financial topics, visit our finance section.