I am not sure whether this is the appropriate place to go in-depth regarding momentum investing. It is fairly technical and there are a lot of nuances. I posted that link only to give you an idea. And to show you that there is evidence of price-based analysis working. Its not all brokers looking to charge as much commissions as possible, peddled by charlatans voodo hokum as it is usually put (although there is some truth to it...technical analysis has been hijacked by those people).
You are already on the wrong foot by starting off with the physics definition of momentum and formulas. In finance, it is completely different. It is just the concept that is similar. You are better off reading and researching about "trend-following".
The strategy doesn't pick the bottom or the top, so you will always miss out both ways
Yes exactly. You are trying to get the 'meat' of the price movement (see picture below).
There is no indication given by this analysis that the trend wont end immediately after you purchase the stock
Yes exactly. Trend-following philosophy is based on the premise that one cannot forecast accurately. Trend-followers do not know when to enter at the bottom or exit at the top. It is to capture any trend that starts to develop based on an objective, rules-based approach.
If the stock drops immediately after the trend finishes then you may end up being forced to sell lower than your threshold
This is why stop-losses and risk management are so critical. No trend-follower will ever take large losses 20% or greater (generally). It can vary a lot though because it depends on your level of diversification, asset classes and instruments etc.
By following this approach you would be exhibiting at least one of the psychological factors that you are attempting to exploit i.e. "investor herding"
What's wrong with that? Investor herding and other psychological theories are just theories we have come up with to explain the "drift" that is exhibited in markets, especially commodity markets.
