Momentum is one of the best-documented market anomalies: stocks that did relatively best over the past ~12 months tend, statistically, to keep doing well over the following weeks and months. Jegadeesh & Titman documented it in 1993, and it has since been confirmed across dozens of markets.
The classic 12-1 recipe
The most-studied variant: rank stocks by their trailing 12-month return skipping the most recent month (hence "12-1" — the last month is dominated by short-term reversal), buy a basket of the top names, repeat monthly. The rules are mechanical: no market feel, no exceptions.
Why would it work at all?
- Psychology: investors underreact — good news seeps into prices over weeks, not instantly.
- Herding: rising prices attract more buyers.
- Institutional frictions: funds scale into positions gradually.
Momentum also has a dark side: the momentum crash. After a violent market reversal (e.g. 2009), the winners' portfolio can lose a lot, fast. An honest presentation of any momentum strategy therefore always shows the maximum drawdown, not just the average return.
Check the data, not the promises
Instead of trusting descriptions, inspect a live, monthly-updated momentum track record computed on real data (with transaction costs and a survivorship-bias-aware universe): Cross-Sectional Momentum (12-1) and the faster Momentum 6-1. Our methodology is documented here.
This article explains a concept — it is not investment advice or an inducement to buy anything.