Momentum trading focuses on time in the market rather than timing, offering significant advantages like low turnover and high trade expectancy.
Momentum trading requires traders to accept losses and manage higher volatility, presenting challenges despite the potential for big winning trades.
Using indicators like rate of change, ADX, MACD, or RSI helps measure trend strength in momentum trading for identifying lucrative opportunities.
Deep dives
Momentum trading foundation and historical context
Momentum trading is discussed as a trading strategy based on price trends that persist in the market due to fear of loss and fear of missing out. The historical context of momentum trading is explored back hundreds of years, showcasing the inefficiencies and human behavior driving trends. The analogy of a skateboard moving until friction stops it is used to explain how trends develop and dissipate.
Benefits of momentum trading
The podcast highlights the benefits of momentum trading, emphasizing that it focuses on time in the market rather than timing the market. With low turnover of trades and high trade expectancy, momentum trading offers significant advantages. The strategy generally delivers big winning trades, ideal for individuals looking for profitable trading approaches.
Challenges and drawbacks of momentum trading
While momentum trading offers a range of benefits, it also presents challenges and drawbacks. Traders engaging in momentum strategies face significant market risk due to the long holding periods involved. Additionally, the strategy usually entails a lower win rate, requiring traders to accept losses and manage higher volatility during market fluctuations.
Measuring trends in momentum trading
The discussion delves into measuring trend strength and direction in momentum trading, essential for identifying lucrative opportunities. By using suitable indicators like rate of change, ADX, MACD, or RSI on longer lookback periods, traders can effectively gauge trend strength and capitalize on favorable trading conditions.
Position sizing and risk management in momentum trading
Position sizing plays a crucial role in momentum trading, aiming to optimize returns while effectively managing risk. Allocating a percentage of the portfolio uniformly to each stock facilitates risk control and minimizes volatility impact. By maintaining a balanced portfolio approach, traders can maximize returns and mitigate exposure to market fluctuations.
Quant Trader Alan Clement from Helix Trader discusses momentum trading & strategies, including:
Why momentum trading is so popular and how it works,
What makes a good trend indicator and the 4 best indicators to identify trends,
Why the moving average is not a good trend indicator,
How to rank stocks by momentum and how many momentum stocks to hold in a portfolio,
The danger of stops and using momentum for exits instead,
How dual momentum protects during Bear markets and market crashes,
Filtering out false signals in indicators,
Plus, market regimes, shorting weak stocks, position sizing, and much more!
Disclaimer: Trading in the financial markets involves a substantial risk of loss and is not suitable for everyone. All content produced by Better System Trader is for informational or educational purposes only and does not constitute trading or investment advice. Past performance is not necessarily indicative of future results.
Get the Snipd podcast app
Unlock the knowledge in podcasts with the podcast player of the future.
AI-powered podcast player
Listen to all your favourite podcasts with AI-powered features
Discover highlights
Listen to the best highlights from the podcasts you love and dive into the full episode
Save any moment
Hear something you like? Tap your headphones to save it with AI-generated key takeaways
Share & Export
Send highlights to Twitter, WhatsApp or export them to Notion, Readwise & more
AI-powered podcast player
Listen to all your favourite podcasts with AI-powered features
Discover highlights
Listen to the best highlights from the podcasts you love and dive into the full episode