Strategy pattern · Momentum
A cross-sectional momentum strategy, tested with its crash risk in view.
The cross-sectional momentum strategy is a Super Algo Kit pattern card with grade A evidence for the broad effect. It ranks a universe by return over roughly the past year, buys the strongest and, where shorting is possible, sells the weakest. It rebalances monthly. It carries a known crash risk when beaten-down losers rebound, and narrow retail versions start at grade B.
strategy facts
Cross-sectional momentum: recent winners against recent losers
- Family
- Momentum: persistence of past returns, ranked across assets
- Markets
- Equities, ETFs, futures and crypto spot
- Timeframes
- Daily and weekly data, rebalanced monthly
- Evidence grade
- A for the broad, multi-market effect: decades of data, replicated. Narrow retail versions start at B
- Status
- Literature: described in published work; untested by the kit
- Data needed
- Total-return prices for a point-in-time universe, delisting returns, borrow fees and liquidity
- Main risk
- Momentum crashes: shorted losers can rally violently after a market bottom
From the kit's own card. Not investment advice.
Paper first
Test it before you trade it.
Super Algo Kit runs inside the coding agent you already use. It interviews you, writes the spec with pass marks set first, then builds, backtests and paper-tests. Real money starts only when you type the authorize command.
The plan, step by step
Tick them off as you go.
How does a cross-sectional momentum strategy work?
Assets that beat their peers over the past 3 to 12 months have tended to keep beating them for several months. The effect was documented first for individual stocks, then across countries and asset classes.
Proposed reasons include slow spread of information and herding. Even grade A evidence comes with long losing stretches and decay after publication, as the kit's catalogue notes.
Momentum trading bot rules in plain words
This is a plain summary of the card's sketch. Your own version declares each choice before the first test.
- Universe: a point-in-time list, including names later delisted, filtered for liquidity.
- Signal: return over about the past 12 months, often skipping the latest month.
- Portfolio: long the top group, short the bottom group, or long only.
- Weights: equal or inverse-volatility, with a cap on single names.
- Rebalance monthly and hold in between.
Where the momentum strategy breaks
The worst losses come in momentum crashes. After a market bottom, prior losers can rebound violently, and a book long winners and short losers loses heavily.
Costs are the second problem. Turnover and short borrow fees eat much of the effect for small accounts and illiquid names. A long-only book on a handful of names is also far noisier than the broad portfolios studied.
How Super Algo Kit tests momentum before any money
Pass marks are declared before the first run. The universe is built point in time, so delisted names count, and costs include turnover, borrow fees and any turnover taxes the pack lists.
Every look-back, skip and group size you try is logged as a trial, and walk-forward results are deflated for that count. Rebound periods after large drawdowns are stressed and reported separately in the regime map.
Before you rely on it
Where it fails.
- Momentum crashes: sharp rebounds after bear markets, when shorted losers rally.
- Turnover costs and borrow fees eat much of the effect for small accounts and illiquid names.
- A universe built from today's members makes past winners look better than they were.
- Crowding: many funds hold the same winners, so exits are crowded.
- Few names, or short histories such as many crypto assets, give few independent periods.
FAQ
Cross-sectional momentum: questions.
Does cross-sectional momentum still work?
Super Algo Kit does not promise that it does. The broad effect is graded A, with decades of data across markets, but it comes with crash risk and can weaken after publication. Whether your version survives its costs is what the kit's backtest and paper run test.
What is a momentum crash?
A momentum crash is a sharp loss when prior losers rebound violently, often after a market bottom. A book that is long winners and short losers loses heavily then. Super Algo Kit stresses those rebound periods and reports them separately.
Can I run momentum long only on a few stocks?
You can test it, but Super Algo Kit treats it as a narrow version that starts at grade B. A long-only book on a handful of names is much noisier than the broad portfolios studied, and costs weigh more at small size.
Why does survivorship bias matter in a momentum backtest?
A universe built from today's index members leaves out names that later failed or were delisted. That makes past winners look better than they were. Super Algo Kit builds the universe point in time and includes delisting returns.
Can cross-sectional momentum be tested on crypto?
Yes, the card lists crypto spot among its markets. Many crypto assets have short histories, so results rest on few independent periods. Read any good crypto result from Super Algo Kit's tests with that limit in mind.
Keep reading
More guides.
United States · Broker APIAlpacaSuper Algo Kit helps you build an Alpaca trading bot inside your own AI coding agent.
United States · Broker APIInteractive BrokersSuper Algo Kit helps you build an Interactive Brokers trading bot inside your own AI coding agent.Sources the kit's card cites
- Jegadeesh and Titman (1993). Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency. Journal of Finance.
- Asness, Moskowitz and Pedersen (2013). Value and Momentum Everywhere. Journal of Finance.
- Daniel and Moskowitz (2016). Momentum Crashes. Journal of Financial Economics.
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Super Algo Kit is development software. It is not investment advice, a signal service or a promise of performance. Trading involves substantial risk, including the loss of all capital you trade with.