Is There Momentum in the Stock Market?

Is there momentum in the stock market?

  • Yes

    Votes: 13 65.0%

  • No

    Votes: 7 35.0%
  • Total voters
    20
F

FlyingTortoise

Sorry for starting a new thread as this is really a continuation of my of thread, A Random Walk Down Wall Street: http://www.elitetrader.com/vb/showthread.php?s=&threadid=188194&perpage=6&pagenumber=1 , I just wanted to take poll on if you believe there is momentum in the stock market and it wouldn’t let me add a poll to my old thread.

Momentum meaning, if a stock (or ETF or index for that matter) is going up, it has greatly than a 50/50 chance up continuing on upward and if a stock is going down, it has greatly than a 50/50 chance up continuing on downward. It was, Burton Gordon Malkiel, author of “A Random Walk Down Wall Street” contention that there is not momentum in the stock market, whether he right or not, I don’t know, but I want to find out.
 
It is important to remember that momentum is a metaphor taken from physics. What works in physics may or may not work in financial markets. There does seem to be something of a bandwagon effect, but I'm not sure how tradable it is. I agree with the previous post that with a little testing, you should be able to answer that question for yourself.
 
I'm with TD Ameritrade right now which you can and I have been backtesting with their StrategyDesk platform. Not sure how accurate it is compared to others. So far, I have not come to any definate conclusions about the momentum question, as it seems, in backtesting at least, it is both possible to write a strategy to loses money and one that makes money, both based on momentum, depending on how you write it.
 
Do we have momentum from the Nikkei to the Dow and vice versa?

I thought one time I read a comparison on momentum using billards as an analogy but I've forgotten where.

Do I think there is, yup.
 
If you're comparing movement of capital from the Nikkei to the Dow, Global Macro people call that capital flight. It moves quickly, and chases returns... in any asset class.
 
Why it is not random is what happened to Neke. He lost $ 100,000 in one day as BIDU kept going up on momentum. However, what may seem like momentum to someone in reality is one side getting trapped in a trade. The shorts who were top picking, took a position in Bidu. When the trade went against them, they added to their position. However the longs were pumping money money into the stock as it shot to all time new highs on good news. See, news is what creates momentum and shorts getting trapped adds to momentum. So its not random, at least not much of the time. Of course this information may not make you any money if you can not tell the difference between random moves and momentum.
 
Quote from oraclewizard77:

Why it is not random is what happened to Neke. He lost $ 100,000 in one day as BIDU kept going up on momentum. However, what may seem like momentum to someone in reality is one side getting trapped in a trade. The shorts who were top picking, took a position in Bidu. When the trade went against them, they added to their position. However the longs were pumping money money into the stock as it shot to all time new highs on good news. See, news is what creates momentum and shorts getting trapped adds to momentum. So its not random, at least not much of the time. Of course this information may not make you any money if you can not tell the difference between random moves and momentum.
More...

Shouldn't you try making money from trading before handing out advice?
 
Quote from FlyingTortoise:

n a 50/50 chance up continuing on upward and if a stock is going down, it has greatly than a 50/50 chance up continuing on downward.
More...
The question is not if there is a "50% of a continuation" but the question really is what is the expected profit over large number of samples?

If I can go long stocks that make new 52 week highs I may lose money on 75% of the trades but the 25% winning trades could be so profitable that they make up for the losses and then some. Just a hypothetical example.

More on the topic: http://www.turtletrader.com/blackstar-funds.html
 
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