Question

How would i start and go about implementing a momentum investment strategy over the next 60 years? in depth to see if i have gone in the right direction would be greatly appreciated

Answer 1

Momentum investing strategy involves a strategy that has the capacity to focus on the continuance of an existing marketing trend. The theory of momentum investment holds the fact that one can gain profit by staying in the trend till its conclusion and investing according to the trend of the economy. As an example, we can see that the upward rising tend after the great depression of 2008, especially in the US saw many momentum investors who reaped its benefits till 2018, ie; for a decade. Thus momentum investing is based on the belief that if a trend is upward, it is more likely to continue as such and vice versa.

                                    Momentum investment is a potentially high risk sector of investment opportunity where the only benefit is the high returns that may follow the cause. It is strictly a technical trading strategy ie; momentum investors are never focused on the operational performance of a company, rather it focus on applying technical analysis on the price trends of the firm. They also anticipate the behaviour of other investors in the market and the strengths of trends in asset prices, key technical indicators etc. They use the concept like trend line, moving averages, stochastic oscillator, Average Directional Index etc. Since a high momentum is characterised by the price advancing or declining over a wide range in a relatively short time, the markets with high momentum rates typically shows increased volatility. A momentum investment is typically short term since they try to catch up with the trending prices. The following are the stages in momentum trading

· A momentum trader first analyses the trend using the methods mentioned above

· As the momentum strengthens, the trader fixes the market position in the sector showing the increased trend.

· When the momentum reverses, they opt out.

                                         As stated earlier, momentum trading normally occurs over a short period of time. Now while we chose the momentum trading, the focus should be more on liquid securities. Leveraged or inverse ETF’s , due to their complex fund construction and price swings does not show the futures market and hence cannot be selected. Regular funds are excellent trading options, but they have only marginal profits and returns which makes them not suitable for long term investment purposes. Investment in growth stocks forms the next best option. Now when sectoral investment options are considered, we can say that land and technology are the next best options which would be having positive trends in the futures market. Momentum investment offers higher profits over a shorter time period by leveraging the market to an advantage. But since it is highly market sensitive and time consuming, better alternatives have to be considered in trading for the future markets.