Momentum
Momentum is the idea that assets that have recently risen tend to keep rising for a while, and those that have fallen tend to keep falling. In practice it is measured as the price change over a lookback period.
How Momentum is calculated
Rate of change = (close now / close n bars ago) - 1. Academic momentum often uses 12 months of return and skips the most recent month (12-1). Time-series momentum compares an asset with its own past. Cross-sectional momentum ranks assets against each other and holds the top ones.
How it is read
A positive reading means price is above where it was n bars ago. Rules use it to hold what is rising or to rank a list of assets.
Common mistakes
- Confusing the academic result with a day-trading signal. The research is about months, across many assets, after costs.
- Ignoring turnover. Ranking rules trade often and costs add up.
- Judging it over a window that happens to be one long trend.
What Tickfloor tested
Tickfloor's research desk has backtested 678 strategies, net of modelled trading costs. After correcting for the 761 tests run, 0 passed. That does not prove no strategy works. These are historical diagnostics, not validation under Testing Standard v2: the backtest harness predates that standard and has not been re-run to meet it.
- 12-1 Month Momentum (claim test)
- Dual Momentum (GEM) (claim test)
- Momentum under realistic costs (study)
- Does avoiding "uncertain" stocks improve momentum? (claim tested)
- AQR-style trend following on 25 ETFs: does it work? (claim tested)
Lessons that cover it
- Momentum and mean reversion: two opposite stories
- Momentum: +20,310% in discovery, a ruin path in reality
Related concepts
General information only. It doesn't consider your objectives, finances or needs. Tickfloor holds no financial services licence and never places trades.