Momentum trading buys assets that have been rising and sells ones that have been falling, on the evidence that recent performance tends to persist over the next weeks or months.
It’s one of the most robust anomalies in financial research — documented across asset classes and decades — and one of the most uncomfortable to trade.
How it’s measured
Usually as return over a lookback window — the past 1, 3, 6 or 12 months — with the most recent period sometimes excluded to avoid short-term reversal. Rank assets by that figure, go long the top and short the bottom, rebalance periodically.
Time-series momentum is the single-asset version: long when the asset’s own trailing return is positive, short or flat when negative.
The return profile
Low win rate, large wins, many small losses. Momentum enters trends late, gets stopped out repeatedly in choppy conditions, and makes its year on the two or three trends it rides fully.
Then it suffers momentum crashes — sharp reversals where the losers rally violently and a short book gets destroyed in days. 2009 in equities is the canonical example.
In crypto
Trends are strong and reversals are violent, which suits momentum in both directions. Funding costs matter: holding a leveraged long through a multi-week trend pays carry every hour, and the strategy must earn more than the carry to be worth running.