Momo stocks (momentum stocks) are stocks with high returns over the past three to 12 months. Momentum investors seek out stocks with the potential to double or triple within just a few months. Momentum investors generally hold a stock for a few months and monitor their holdings daily. They tend to sell their stocks with a few months after acquiring it.

There are many stocks in the market that accelerate in price that go on to make 100% to 300% returns in less than year or even in a few months.

Somehow momo stocks investing is always referred to with a little derision and considered by many to be of dubious reputation. However it has its plus points and is known to give above expectations returns at times.

Since investors putting in their money in momo stocks aim high, ordinary steady returns do not attract them. They aspire to double or triple their investments in a few months time. While investing, they are on the look out for stocks that have already outperformed the market; strong historical earnings growth and positive earnings growth forecasts. Investors typically screen the stocks for those that best meet their requirements and then decide on the ones in which to put their money.

Momentum investing however causes discomfort for efficient market theorists. Its basic assumption is that trends exist and they continue. If a stock has performed well in the recent past it will continue to do so in the near future also. This may seem too simple and basic to work, but surprisingly it does.

Investors in momo stocks cannot follow the buy and hold strategy. They monitor their holdings daily and at the maximum hold the stock for a few months.

Knowing the right time to enter a stock is not as difficult as is knowing the right time to exit it. It needs to be understood that momentum stocks will get trampled badly if something goes wrong. Therefore, investors in such shares must act quickly at the first hint of trouble. The trigger to exit the stock can be found in various indicators, broadly a weak price chart is a sell signal; any bad news from disruption in production to an accounting scandal will give a signal to exit; any reversal in growth forecasts is a clear signal to sell.