Momentum Investing Fundamentals and the Origin of the Triple Momentum Model
Momentum investing is a strategy based on the continuation of asset price trends. Its core idea is that assets with rising prices tend to continue rising, while assets with falling prices tend to continue falling. This strategy aims to generate returns by identifying and following these trends. In this field, the "Dual Momentum" strategy proposed by Gary Antonacci is a significant milestone, screening securities using two dimensions: relative momentum (comparing an asset's performance to its peers) and absolute momentum (comparing an asset's performance to its own historical performance or to risk-free assets).
The "Triple Momentum" model further evolves upon this foundation by introducing a third analytical dimension. This additional dimension is often referred to as "macro momentum" or an extra screening condition, which may include broader market trends, economic conditions, or specific technical indicators, aiming to provide more comprehensive market insights and more robust trading signals.
Core Mechanisms and Common Indicators of the Triple Momentum Strategy
The Triple Momentum strategy combines multiple momentum factors to achieve greater precision in capturing market trends. Dual Momentum already covers the relative strength between assets and an asset's own risk-adjusted performance, while the third dimension may be used to confirm the macro background of a trend or filter out false signals. For example, in 2023, a "Triple Momentum Strategy" was explicitly proposed, combining the Relative Strength Index (RSI), Exponential Moving Average (EMA), and Average Directional Index (ADX), specifically designed for swing traders.
Common technical indicators used in momentum strategies include:
- Relative Strength Index (RSI): Measures the speed and magnitude of price changes to determine if an asset is overbought or oversold.
- Moving Average Convergence Divergence (MACD): Reveals the direction and strength of a trend through the relationship between two moving averages.
- Average Directional Index (ADX): Assesses the strength of a trend, rather than its direction.
- Exponential Moving Average (EMA): Gives higher weight to recent prices, reflecting price changes more sensitively.
The combined use of these indicators allows the Triple Momentum strategy to evaluate market momentum from multiple angles, leading to more refined trading decisions.
Historical Performance and Market Views
Historical backtest data provides a reference for the potential advantages of the Triple Momentum strategy. According to 2019 data, a Triple Momentum strategy, holding 7-10 year US Treasury bonds instead of cash, achieved a Compound Annual Growth Rate (CAGR) of 19.30%, a Sharpe ratio of 0.92, an annualized Alpha of 11.79%, and a maximum drawdown of 37.88%. In comparison, the S&P 500 Index (SPY) had a maximum drawdown of 55.19% during the same period, while the Dual Momentum strategy had a CAGR of 16.83% and a Sharpe ratio of 0.77. These figures suggest that the Triple Momentum strategy may offer superior risk-adjusted returns.
Furthermore, a backtest of a general momentum strategy in July 2026 showed a CAGR of 5.3%, a win rate of 82%, and a maximum drawdown of 26%. Another 100-day momentum strategy for the S&P 500 (based on data from 1960 to June 2023) showed that an initial capital of $100,000 could grow to $5.5 million after 60 years, with an annualized return of approximately 6.5% and a maximum drawdown that was only half of a buy-and-hold strategy. These historical data are for reference only and do not represent future performance.
The market generally believes that momentum trading strategies have an advantage in the short term (typically 3-12 months, with monthly rotation) but may experience reversals in the long term. The success of the strategy highly depends on precise timing, i.e., entering after a trend has truly formed and exiting before the trend exhausts. Investors applying such strategies should fully understand their risks and can verify the latest prices and project information on professional market data platforms like Svmuu.
Scope of Application and Key Stakeholders
Momentum strategies have a wide range of applications and can be applied to various financial markets, including stocks, ETFs, commodities, and currencies. They are also suitable for different trading styles, such as day trading, swing trading, and position trading. This flexibility makes them a tool for many traders and investors.
In the field of momentum investing, besides Gary Antonacci, Richard Driehaus is also considered the "father of momentum investing," advocating the philosophy of "buy high and sell higher." Although the Triple Momentum strategy does not have a high overlap in stock selection with Joel Greenblatt's portfolio, both aim to find advantages in the market.
