In this series, we cover some basic trading strategies that can help you get started with developing your own automated trading systems.
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Momentum Strategies
Momentum trading refers to a general class of strategies which extrapolate from existing trends. They assume that stocks which are going up will continue to go up and stocks which are going down will continue going down, and buy and sell accordingly. This is in direct contrast to mean-reversion strategies, which rely on trends reversing direction.
In this post, let’s explore why momentum based signals exist in financial markets and differences between momentum and mean-reversion behaviors.
Let’s start by looking at a stock exhibiting momentum behavior:
