But ROE remain concerning, maybe causing lower valuation
can anyone explain
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DIY Momentum QnA and Discussion (27-06-2024)
The points mentioned and links given are well thought out, please refer them to get deeper into strategy knowledge. The use of stop-loss orders in a momentum strategy is debated among investors. Here are two perspectives:
Pro-Stop Loss:
- Risk Management: Stop-loss orders can help manage risk by limiting potential losses when a stock’s price reverses unexpectedly.
- Capital Preservation: They ensure that significant losses are avoided, preserving capital for future investments.
- Discipline: Implementing stop-loss orders enforces a disciplined approach to selling underperforming stocks, preventing emotional decision-making [❞].
Anti-Stop Loss:
- Volatility Sensitivity: Momentum stocks can be volatile, and stop-loss orders might trigger during normal price fluctuations, leading to unnecessary sales.
- Trend Continuation: Selling too soon due to a stop-loss might cause investors to miss out on a stock’s subsequent recovery and continued upward trend.
- Strategy Purity: Some argue that momentum investing should focus purely on price trends without interference from stop-loss mechanisms, relying on the strategy’s inherent rebalancing to manage risk [❞] [❞].
Conclusion
Both approaches have valid points. Using stop-loss orders can enhance risk management but may lead to missed opportunities in volatile markets. Investors need to choose based on their risk tolerance and investment style.
DIY Momentum QnA and Discussion (27-06-2024)
The fundamentals of a momentum strategy are:
- Price Trends: Focus on stocks that have shown strong recent price movements, as they tend to continue performing well.
- Relative Strength: Select stocks that outperform their peers.
- Holding Period: Hold positions for short to medium terms, typically a few months.
- Rebalancing: Regularly update the portfolio to include the strongest momentum stocks.
- Risk Management: Use stop-loss orders, diversify, and control position sizes to manage risks.
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DIY Momentum QnA and Discussion (27-06-2024)
But if we follow fundamentals also and applying stop losses also, then it wont be pure quantitative momentum…There will be too many things to track and stick to…Momentum special quantitative is all about price movement