Price-momentum
Rank winners versus losers on a lookback window; works until crowding, reversals, or a regime shift punishes trend followers.
Overview
Price-momentum sits in the Stocks chapter of the systematic catalog. On QUSXFI we treat it as a testable hypothesis: specify entries, exits, sizing, and costs—then ask whether edge survives out-of-sample scrutiny.
Discretionary traders often arrive at similar ideas intuitively; the quantitative version forces you to write the rule before you see the next bar. That discipline is what makes results reproducible—or exposes them as luck.
Based on the research catalog 151 Trading Strategies (Kakushadze & Serur, 2018), section 3.1. Educational summary—not a replication of the full formal definition.
Signal and Portfolio Construction
Rebalance cadence, vol scaling, and sector constraints decide whether you run pure trend or a constrained factor portfolio.
Before backtesting Price-momentum, write the economic hypothesis in one sentence a risk manager would accept or reject.
Implementation and Research Process
Include at least one documented momentum crash month in Price-momentum evaluation—not optional stress, core diligence.
Slice Price-momentum by vol regime and rate cycle—momentum is conditional, not universal.
Decompose Price-momentum into signal, portfolio construction, and execution modules—each must be path-independent given the same historical tape.
Risk: What Breaks This Strategy
Momentum crashes—sharp reversals after crowded trends—are the signature tail risk of Price-momentum. Factor crowding and ETF flows accelerate the unwind.
Turnover and transaction costs scale with rebalance frequency; what worked gross of fees dies net.
Regime shifts (policy shocks, bear markets) can flip sign on the same lookback parameter that looked brilliant in the prior decade.
Common Mistakes to Avoid
- Using academic §3.1 definitions for Price-momentum while ignoring borrow, margin, or contract specs.
- Skipping crash months in Price-momentum evaluation because they 'ruin the chart.'
- Reporting Price-momentum gross returns while capacity binds on the same names every rebalance.
- Deploying Price-momentum live before paper trading through at least one adverse Stocks month.
How to Study This Strategy
- Codify Price-momentum signal, lag, rebalance, and vol-scaling rules without discretionary overrides.
- Run Price-momentum walk-forward on a liquid universe; export turnover and sector exposures.
- Identify the worst momentum crash month for Price-momentum in-sample and replay it out-of-sample.
- Write Price-momentum failure triggers: drawdown, turnover spike, sign flip on the signal.
- Simulate Price-momentum at two participation rates; note where capacity binds.
Key Takeaways
- Price-momentum ranks past winners and losers—edge is conditional on trend persistence, not guaranteed by the lookback.
- Rebalance frequency and universe for Price-momentum drive turnover; gross returns without fees mislead.
- Sector neutrality changes whether you trade pure trend or a constrained factor portfolio.
- Regime shifts can flip sign on the same parameter that worked in the prior decade.
- Walk-forward Price-momentum; a single in-sample lookback winner is a research accident until confirmed out-of-sample.
Learning Tip
Plot Price-momentum cumulative return with crash months highlighted in red—stakeholders remember color, not Sharpe.
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