Quantitative Momentum Strategies: Capturing Alpha through Systematic Trend-Following Techniques
Momentum trading has been a staple of financial markets for decades, offering traders a data-driven method to capitalise on price trends. Quantitative momentum strategies have taken this approach to the next level, using systematic, algorithmic techniques to enhance consistency and reduce human bias. The ultimate goal of these strategies is to capture alpha — the excess return beyond a benchmark — by following well-defined trends in the market. In this article, we explore how quantitative momentum strategies work, their core components, and how traders can use them to achieve better performance.
Understanding Momentum Trading
Momentum trading is based on a simple principle: assets that have performed well recently will likely continue to do so in the short term, while poorly performing assets will likely continue their downward trajectory. This is often described as “riding the wave” — buying into uptrends and selling into downtrends. For traders looking to apply momentum …