Momentum is a powerful risk factor in the short term (up to around one year), as many studies show. But it can be confusing when it comes to identifying useful signals for portfolio management on a day-to-day basis. A key challenge is defining momentum. There are a number of possibilities. Returns are one choice. Another is comparing the current price of a security or index to its moving average. In that case, should we use, say, 20-, 50-, or 200-day moving averages? Or maybe a combination of moving averages? In a bid to bring some order to a black hole of options, I prefer to analyze momentum signals for the major asset classes with a pair of objective (in my view) definitions of short- and long-term periods for prices relative to a set of exponential moving averages (EMAs).
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