Trend
12-month momentum
Trend as it is: up over the year, hold; down, exit. Trend-following funds are built on this rule, only they apply it to dozens of markets at once.
Rules
- Momentum is the price change over 12 months (on daily candles, over the number of candles in a year for that market).
- Momentum above zero: buy.
- Momentum below zero: sell.
Code for the lab
months = input(12, 1, 12, 1) look = round(bars_per_year * months / 12) momentum = roc(close, look) plot momentum buy when momentum > 0 sell when momentum < 0
You can change the code right in the lab: the numbers in input(…) become sliders.
Results on eight markets
| Market | CAGR | Drawdown | Trades | Buy and hold: CAGR | Buy and hold: drawdown |
|---|---|---|---|---|---|
| MOEX Russia Index | — | — | — | — | — |
| Sberbank | — | — | — | — | — |
| Gazprom | — | — | — | — | — |
| Gold, $ per ounce | — | — | — | — | — |
| Brent crude, $ per barrel | — | — | — | — | — |
| Bitcoin | — | — | — | — | — |
| Ether | — | — | — | — | — |
| VN-Index | — | — | — | — | — |
| Market | CAGR | Drawdown | Trades | Buy and hold: CAGR | Buy and hold: drawdown |
|---|---|---|---|---|---|
| MOEX Russia Index | — | — | — | — | — |
| Sberbank | — | — | — | — | — |
| Gazprom | — | — | — | — | — |
| Gold, $ per ounce | — | — | — | — | — |
| Brent crude, $ per barrel | — | — | — | — | — |
| Bitcoin | — | — | — | — | — |
| Ether | — | — | — | — | — |
| VN-Index | — | — | — | — | — |
The numbers are calculated in your browser from fresh source candles.
Default parameters, daily candles, a fee and slippage of 0.05% each per trade, no return on cash out of the market, prices without dividends. The test starts once all of the rule’s indicators are calculated.
What research says
Moskowitz, Ooi and Pedersen (2012) found “time series momentum” in 58 liquid futures: the return over the past 12 months predicted the sign of the next one.
Hurst, Ooi and Pedersen (2017) traced trend following across 67 markets since 1880: the return was positive in every decade, and in 8 of the 10 worst declines of the classic 60/40 portfolio, the trend strategy was in the black. Both papers come from researchers at the AQR fund.
Original source: Moskowitz, Ooi, Pedersen. Time Series Momentum. Journal of Financial Economics, 2012
When the rule breaks
- On a single market the rule is noisier than on a portfolio of dozens: Huang and co-authors (2020) found that predictability for individual markets is weak.
- A turn after a long rise: the exit comes only months later.
- Years without big moves: after 2009, trend funds earned little for a long time.