Momentum Strategies and Strategy Parameters

Question 1

Momentum Strategies

Answer 1

Aims to exploit the continuations of a trend, working with volatility by finding buying opportunities in short-term uptrends and then selling when the securities start to lose momentum.

Question 2

Triple Moving Average

Answer 2

Three moving averages of price: short lookback, medium lookback, and long lookback.
Buys when short < medium < long.
Sells when short > medium > long.
Flat when the short and medium relationship differs from the medium and long relationship.

Question 3

Relative Strength

Answer 3

Relative strength momentum traders compare the performance of different assets or securities and focus on those that have exhibited the strongest relative performance.
* Go long the k with the strongest 12-month momentum (typically where the price has risen).
* Go short the k with the weakest 12-month momentum (typically where the price had fallen).

Question 4

Trailing Stop

Answer 4

Measures the loss relative to the best price (high for a long trade, low for a short trade) since the trade was entered, rather than from the entry price.

Question 5

Position Sizing

Answer 5

The size of a position within a particular portfolio, or the dollar amount that an investor is going to trade.

Question 6

Timeframe

Answer 6

The amount of time that a trend lasts in a market which can be identified and used by traders.

Question 7

Strategy Parameters

Answer 7

Typically, strategies are parameterised. Therefore, it is better to pick parameter values that are likely to produce good results in the future. This relies upon strategy optimisation.