Momentum is based on the Newtonian notion that a body in motion tends to stay in motion. The classical economist David Ricardo translated momentum into investment terms with the oft quoted phrase, “Cut your losses; let your profits run on.”
Momentum dominated the 1923 book, Reminiscences of a Stock Operator, about the legendary trader Jesse Livermore. Momentum-based velocity ratings were used in the 1920’s by HM Gartley and published in 1932 by Robert Rhea. George Seaman and Richard Wycoff wrote books in the 1930s that drew upon momentum principles.
Momentum also has strong roots in academic research. The first scientific momentum study was published by Alfred Cowles and Herbert Jones back in 1937. Cowles and Jones compiled stock performance statistics from 1920 through 1935. They found the strongest stocks during the preceding year remained strong the following year.