Momentum: The Tendency of Trends to Continue
Macro Glossary, Sentiment and Regime
By Ken Chigbo, macro trader and founder of KenMacro, 18+ years in markets.
Updated 2026-05-20
The desk’s answer
Momentum is the tendency of assets that have risen over a recent period to continue rising, and assets that have fallen to continue falling. It is the empirical opposite of mean reversion: persistent directional moves are extended further by positioning flows, narrative consensus, and capital chasing return. Momentum forms the empirical basis of trend-following strategies (Jegadeesh and Titman 1993 documented the academic factor; CTAs have run momentum systematically for 40+ years). It works in trending regimes and fails in range-bound or whipsaw regimes; recognising which regime is live is the precondition for trading momentum.
Defined term, Momentum
Momentum is the empirical tendency of assets that have risen over a recent lookback period to continue rising, and assets that have fallen to continue falling. It is the documented opposite of mean reversion: instead of price reverting to average, persistent directional moves are extended further by the same forces (positioning flows, narrative, capital chasing return) that produced the initial move. Momentum forms the empirical basis of trend-following strategies.
How momentum is measured
Three common momentum measures. First, simple rate-of-change: today’s price divided by the price N periods ago, minus 1, expressed as a percentage. A positive 12-month rate-of-change is a bullish momentum signal in equity factor strategies. Second, moving-average crossovers: when a fast moving average (typically 50-day) crosses above a slow moving average (200-day), the so-called ‘golden cross’, momentum is up. Third, momentum oscillators like ROC, Williams Percent R, and stochastic momentum index, all variants of the same idea. The academic literature mostly uses 3 to 12 month price changes; tactical traders use shorter lookbacks (20 to 60 days).
Why momentum works
Three reasons. First, behavioural: under-reaction to news in the short term means information is priced gradually rather than instantly, producing persistent post-news drift in the direction of the news. Second, positioning flows: when a fund manager is forced to add to winning positions (because of relative-return benchmarks) and trim losers, the winners attract more flow which extends the momentum. Third, narrative consensus: as a directional move accumulates, retail and institutional narrative coalesces around it, drawing more capital in the same direction. The behavioural component has been the most studied; the positioning component has held up most consistently over multi-decade history.
When momentum fails
Momentum’s weakness is regime transitions. The strategy is bullish-trending in trending regimes and goes flat or short in declining regimes, but the transition months produce large losses as momentum signals reverse with the regime. The 2009 reversal, when equity rocketed off the bear-market lows in months when 12-month momentum signals were still short, produced one of the worst drawdowns in trend-following history. The 2020 March COVID crash and the subsequent April-May reversal repeated the pattern. Momentum works on average over multi-year horizons but suffers structural drawdowns at regime turns, which is why it pairs with absolute-return alternatives (carry, value, defensive) in any diversified systematic book.
Frequently asked
What is momentum in trading?
The empirical tendency of assets that have risen over a recent lookback period to continue rising, and assets that have fallen to continue falling. It is the documented opposite of mean reversion and forms the empirical basis of trend-following strategies.
How is momentum measured?
Common measures: simple rate-of-change (price now divided by price N periods ago minus 1), moving-average crossovers (golden cross when 50-day crosses above 200-day), and momentum oscillators (ROC, Williams Percent R, stochastic momentum). Academic studies typically use 3 to 12 month lookbacks; tactical traders use shorter 20 to 60 day measures.
Why does momentum work?
Three reasons: behavioural under-reaction to news (gradual rather than instant pricing), positioning flows (winners attract more flow which extends the move), and narrative consensus (capital coalesces around a directional move). The positioning component has held up most consistently over multi-decade history.
What this means at the desk
Momentum works in trending regimes and fails at turns. Pair with carry and value in any diversified book.
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