Explaining Momentum

Explaining Momentum

The Rivkin Local Momentum Strategy is a purely systematic, price based trading system that produces excellent results based on our back-testing over the previous 15 years. The aim of this article is to give an overview of the concept of momentum in stock prices. My suspicion is that many investors have a general idea what momentum is but don’t actually understand how it is measured or how we can profit from it.

In science, the concept of momentum is very well defined, with explicit formulas used to calculate it. When it comes to investing however, momentum can be defined in myriad different ways. For this reason, it is impossible to give an explicit definition of a stock’s momentum and there are probably thousands of different momentum based strategies in existence around the world, all based on slight variations of the underlying concept.  

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