Momentum Trading Strategy
Q1: What is the core idea behind this trading strategy?
The strategy is based on momentum trading, which involves identifying and investing in stocks, indices, or commodities that are showing strong upward price trends.
Q2: Is this a long or short strategy?
It is a long-only strategy, meaning it only takes positions that benefit from rising prices and does not short-sell.
Q3: What types of instruments does the strategy trade?
The strategy focuses on:
Top U.S. stocks with strong growth and momentum characteristics
Major indices (e.g., S&P 500, Nasdaq)
Precious metals, specifically gold and silver
Q4: How many positions does the strategy hold at a time?
It typically holds 1 to 2 positions at any given time, depending on market conditions and the strength of available opportunities.
Q5: How is capital allocated when entering a trade?
The capital is deployed in two stages:
The first entry uses one-third of the intended capital (not more than 10% of the total capital).
If the momentum continues and conditions remain favorable, a second entry may be made using the remaining two-thirds (not more than 20% of the total capital).
Q6: What is the benefit of this staged entry approach?
This approach helps manage risk by:
Allowing the strategy to test the strength of the trend before fully committing.
Providing flexibility to scale into a position only if momentum persists.
Q7: How many trades are hold at any point of time?
It depends on the market condition. On average, the strategy generates 2 to 5 trades per month, with a holding period of 10 to 25 days. Thus, we might hold up to 10 trades at the same time.
Disclaimer: This article constitutes the author’s personal views and is for entertainment and educational purposes only. It is not to be construed as financial advice in any form. Please do your own research and seek advice from a qualified financial advisor. From time to time, I have positions in all or some of the mentioned stocks when publishing this article. This is a disclosure - not a recommendation to buy or sell stocks.