What it means
Momentum is the observation that assets that outperformed over the past 6-12 months tend to keep outperforming over the next 3-6 months, on average. It's one of the most robust empirical findings in finance, documented across asset classes and time periods.
Why it matters
Momentum exists because investors are slow to react to news, and once they react, they react together. The factor pays well in trending markets and crashes hard in regime changes (e.g., 2009 and the 'momentum crash').
How to use it
Use 12-1 momentum (12-month return excluding the most recent month) as a core signal. Combine with quality and reversal factors to soften crash risk.
Take it further
Want a worked example or a deeper dive? Ask Rocky how this concept applies to your specific watchlist or trade idea.
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