Strategies · Library · Stocks
§3.1Trend
Price-momentum
Rank stocks by their return over a past formation window, usually about a year with the latest month skipped. Buy the top group (and short the bottom group in a market-neutral version). Winners tend to keep winning for some months.
Open in the builderAs a long-only proxy; see how ARCANE uses it.
- Asset class
- Stocks
- Held for
- Months
- Data
- ARCANE has the data
- Symphony
- Builds as a long-only proxy
The rule
- Signal
- Cumulative return over the formation window, skipping the most recent month.
- Entry and exit
- Form the portfolio at each rebalance; hold about a month or longer, then re-rank. Longer holds can be built by overlapping monthly portfolios.
- Sizing
- Equal weights, or weights shrinking with each stock's volatility; dollar-neutral version splits long and short sides evenly.
How it fails
- Sharp reversals in market crashes
- Turnover costs
- Momentum fades with longer holds
- Shorting needed for the neutral version
Data it needs
- daily prices
Daily adjusted closes for US stocks are available.
How ARCANE uses it
A Call that a sector or stock will keep leading can cite its trailing 12-month rank against peers. Alpha can use the rank as a plain evidence line.
Builds as a long-only proxy. A filter that keeps the top N of a small basket by cumulative return fits; the thousands-of-stocks universe, the skip month and the short leg are lost.
Filed under the trend card
Hold each market in the direction of its own return over the past year, and size every position to the same expected volatility.
A paper plan from this card holds 21 to 252 days, stops at 2× the expected move and uses at most 100% of your risk budget. The card
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §3.1, p. 41 of the SSRN version. Described in our words. Trend is ARCANE’s filing, not the book’s.