How to analyze and evaluate momentum strategies?

Discussion in 'Strategy Development' started by mizhael, May 14, 2010.

  1. Hi all,

    I've heard that many momentum strategies are performing poorly these days.

    Mine is losing a lot money YTD. How about yours?

    I wanted to shut the momentum strategy down but my collaborator disagrees: he always said maybe it will soon start making money for us.

    But my feeling is that at least the next 1-2 months won't be good for momentum.

    He said: who knows. Maybe or may not be...

    Is there anyway to improve our situation?

    If we can find certain periods that momentum strategies don't work and if I can convince him in a convincing way, then we can probably do something.

    At least we need to be adaptive to the changing environment... it doesn't make sense to sit there and do nothing while the strategy is losing money.

    Anybody please shed some lights on us?

    Thank you!
  2. MGJ


    What have you tested (so far)?

    If your test results let you confidently say, "X doesn't help much" (or "X doesn't help at all!"), what are some values of X from your research?

    What are the three ideas in this area that you are going to research next?
  3. What instruments do you trade? The big trendfollowing CTAs are up a good bit in 2010.
  4. What type of momentum system are you using? I'm tracking a number of strategies that use momentum combined with value and/or other factors, with typical hold time of a couple weeks. They are all up nicely YTD, 16 - 50%. The one of these that I am trading live is towards the upper end of this range.
  5. Momentum based systems do not fair well during volatile periods especially if using tight stops. You can either relax the stops if you believe momentum will resume to the upside (I presume you were long) or stop the system and use another indicator for when to re-start it.

    I charge 2% of capital for specific advice (just kidding):)
  6. On another point, the number one rule in trading is risk control. If you don't have confidence in your strategy and it is not working you lose nothing by halting trading. There will ALWAYS be other opportunities to make money.

    I have done some testing of equity curve timing, refererenced in the other thread as Joe Krut's method - timing the equity curve with a moving average, and getting out when the equity curver is below the average. As mentioned in the other thread, like any moving average timing it is prone to whipsaws. Although I don't use it I think the approach has merit. Whipsaws can be reduced by using weekly timing (if your hold time is long enough) or use a moving average crossover.
  7. Liquid futures... any more thoughts?
  8. MA cross-overs. Why I am down a lot in this strategy YTD?
  9. It's dangerous to relax stop - what if there is a crash ahead?
  10. If your drawdown is more than your max drawdown in backtesting, stop trading. If not, keep trading. It's that simple.
    #10     May 14, 2010