Ever since the 1980s, when the now-infamous "Turtle Traders" beat the market with simple strategies based on breakouts to new high prices, momentum investing has been shown to be a potentially profitable strategy.
In fact, many academics now agree that ‘momentum’ is one of the most powerful drivers of returns in financial assets’.
With this in mind, shares in Babcock International (LON:BAB) have been in an uptrend in recent months, showing signs of strong price momentum. The question now for investors is whether that price strength will continue.
Knowing exactly what drives relative strength in share prices can help you find profitable momentum trades.
How has the Babcock International (LON:BAB) share price performed?
In terms of relative price strength the stock has performed well against the market over the past year:
1 Month: 12.5%
6 Months: 16.0%
12 Months: 13.6%
Relative strength is a useful tool in the armoury of technical traders and investors. It’s an instant measure of how a stock has performed in comparison with a benchmark.
And while there are no certainties about which way a stock will move next, research shows that price trends like can potentially persist.
Studies by leading experts on momentum show that stocks with the strongest price strength can sometimes keep up the pace for anywhere up to one year as investors increasingly buy in to them.
What does this mean for potential investors?
Babcock International is currently among the stocks with the strongest six-month and one-year relative price strength in the market. But momentum on its own is no guarantee of future returns.
To get a better idea about whether this momentum will continue, it's worth doing some investigation yourself. Indeed, we've identified some areas of concern with Babcock International that you can find out about here.