Beginners luck and fearlessness combine to make those first weeks or months very rewarding. But results often change quickly. Momentum traders at all levels lack sound risk management. Focus on the big gain dulls awareness of the big loss. Market insiders adjust quickly to the momentum crowd and generate sharp whipsaws to shakeout the weak hands.
Confused participants start buying tops and selling bottoms with regularity.
Or they abandon their rules and try to survive by holding old winners through violent selloffs and waiting for a bounce. The untrained eye sees continuous price change but trends last only a short time compared to constricted ranges. During one phase of Rambus' February move, the stock printed 15 trend bars compared to 53 sideways range bars. Without excellent timing, momentum traders have many opportunities to fail. Sharp trends print wide range bars and many gapping moves.