A lot of people think that momentum investing is like being a day trader. They assume you have to glue yourself to a screen and react the second a news alert pops up.

Actually, the data shows the exact opposite. You can even ignore how a stock did over the last 30 days and still get great results. There is just no reason to be in a huge rush to swap your stocks.

The real numbers

I looked at how different strategies actually perform. It turns out that a momentum strategy works just as well whether you include the most recent month or not. That means you can pretty much skip the last four weeks of price action without losing gains.

The big moves that actually matter happen over six to twelve months. Anything that happens in a single month is usually just random noise. Most university studies on this topic actually leave out the last month on purpose because of that.

Versions of Composite momentum strategy

| Method | Version | Yearly Return |

|--—--—---|-----------------—---|--------------|

| Monthly | With last month | 31.9% |

| Monthly | Without last month | 32.5% |

| Quarterly | With last month | 31.3% |

| Quarterly | Without last month | 29.6% |

Why this is good news

Since momentum takes a while to play out, you don’t have to jump the moment you get a signal. In fact, waiting a week can be a smart move. It is much more important to get a good price when you buy. I have found it is better to do your trades calmly when you have a free spot in your schedule and the market isn’t going crazy.

Some ways to handle this:

• Make a plan. Think of the portfolio updates I send you as a simple nudge. Pick a day later in the week that works for you to actually place the trades.

• Get your list ready. I like to write down exactly what I am buying and selling in a spreadsheet before I even open my brokerage account.

• Avoid the morning rush. The price gaps and spreads are usually much better when the market is quiet.

• Break up big trades. If you are moving more than €10,000, try splitting the order into smaller chunks throughout the day.

I usually handle my own rebalancing between the big updates whenever I can really focus on the screen. I get my list ready and then I trade slowly between 10:00 and 15:00. If I am buying a stock that doesn’t trade very often, I use a basic VWAP tool to spread my buying out so I don’t move the price myself.

Checking your portfolio once a month is plenty. If you do it more often, you just end up chasing ghosts and paying way too much in trading fees. You will actually make more money if you ignore the daily zig-zags and keep your turnover low.

Stay calm and trade on

Since the last month of data doesn’t make or break the strategy, you should probably stop worrying about tiny price drops. This is why things like stop-losses usually don’t help much here. The stocks that stay in the portfolio for a long time are the ones that really pay the bills. On average, people hold these winners for about five months. You have plenty of time to get in, so focus on being efficient and steady instead of fast.

Trade the truth,

Fredrik

PS. Sign up to see how I apply this momentum strategy:

Disclaimer: For informational purposes only; not financial, investment, or legal advice. Not a financial advisor. Investing involves risk, including loss of principal. Past performance does not guarantee future results. Consult a qualified professional. Use at your own risk.