Parent Strategy

Buy things that have been outperforming and avoid or sell things that have been underperforming

Momentum is one of the few theories that technicians and academics agree on

  • Momentum strategies tend to work in the short term, not the long term
  • Have worked for centuries
  • Works because of human behavior (human behavior does not change)
  • Tho types of momentum
  • Papers to read that prove this:
    • A Century of Evidence on Trend-Following Investing (AQR)
    • Two Centuries of Multi-Asset Momentum (Geczy & Samonov)

Eugene Fama on Momentum

  • "The data show it does well just about everywhere.  The evidence that it produces superior returns over long periods, if you can do it cheaply enough, is robust"

Famous Momentum Traders:

  • Charles Dow (1851 - 1902)
  • Jesse LIvermore (1877 - 1940)
  • Richard Wyckoff (1873 - 1934)
  • George Chestnut (1930s)
  • Richard Donchian (40s and 50s)
  • Nicholas Darvas (1920 - 1977)
  • Jack Dreyfus (50s and 60s)

Areas Where Momentum Strategies have been studied and proved to work: