It is an approach to investing in which the investor tries to make profit out of continuance of the existing market trend, whether upside or downside. The momentum investor believes that the current market trend is to continue for a while, and entering the market even now would provide positive return on investment based upon the expected horizon of continuity of current trend. So, if the market is moving upward, the investor would take long position to gain from expected further appreciation of stock prices. Similarly, in a downward moving market, the investor would go short to buy profitably at lower prices on expectation of further depreciation of stock prices.
Momentum investing depends upon the expected propensity of the relative winning stocks to keep winning and the losing stocks to keep losing. So, whenever the market or the stock movement changes its direction, momentum investors are expected to incur losses. The market or stock momentum may or may not be based upon sound fundamentals. So, if investors are investing in a stock having upward price trend due to some momentum but otherwise having weak company fundamentals, they are in fact aggravating the market inefficiency.
Momentum investing is mostly attributed to the herd mentality of investors, over-reaction to some event, and confirmation bias.