What is Momentum? | Momentum Trading Strategies | Quantra Courses

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This video is the preview of our course on Momentum Trading Strategies.
quantra.quantinsti.com/course/momentum-trading-str…

Timestamp:
Momentum - 00:15 - 00:51
Example - 00:52 - 01:43
How to profit from momentum strategy? - 1:44 - 02:00
Effectiveness of momentum strategy - 02:00 - 02:36

Welcome to this video lesson on the introduction to momentum.
After completing this, you will be able to Explain momentum List examples of momentum Explain the effectiveness of momentum strategies in the past.
Momentum is the tendency of financial security to continue its price movement in the given direction.

The power of momentum trading was successfully harnessed by Richard Driehaus. His firm, Driehaus Capital Management, delivered 30% compounded annual returns in the first 12 years since 1980.
The outperformance of momentum strategy is also evident from the 212 years of US equity data. Momentum is found in different asset classes and across geographies.
Momentum for an asset’s price can be in an upward or downward direction.

For example, on 14 Feb 2020, it was reported that Tesla Factory in China started delivering cars. The closing price on 14 Feb was $800.
It kept on rising till 19 Feb where it closed at $917. That is a rise of $117 in 5 days.

Is momentum only on the upside?
No. During the Covid-19 pandemic, the demand for oil fell drastically.
Add to that an oil price war between Russia and OPEC made the situation worse. This led to WTI oil futures plummeting drastically in negative territory.

What made sellers pay buyers for oil?
This is due to the fact that the sellers did not want to pay for storage costs, as supply was more than demand. How can you profit from the momentum strategy?
You simply buy high and sell higher.

Similarly, you will short-sell when low and cover even lower. This style is contrary to value investing which advocates to buy low and sell high.
There has been a lot of debate over the effectiveness of momentum related trading strategies.

Most people think momentum is more of a fluke, however, recent research by AQR Capital tells us otherwise. It was found that a momentum strategy was profitable in all the decades, from 1880 to 2016.
But how did the momentum strategies fare when overall markets were impacted? It was found that the momentum strategies were less impacted than a portfolio of 60% stocks and 40% bonds in the top 10 drawdowns period.

In the next video lesson, you will learn to list and explain common myths related to momentum.


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