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Quantitative Investing: Strategies to exploit stock market anomalies for all investors by Fred Piard

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Chapter 3: Momentum

We have seen in Chapter 1 that the word “momentum” designates either the return of an asset on a specified time interval, or the ratio between the final and the initial price on this interval. It is an indicator of trend. When using it here to rank assets, we have also seen that both calculation methods are equivalent.

Basically there are two ways to make money on the long side: buy low to sell high (what everybody tries to do first), and buy high to sell higher (what a lot of people do after losing money the first way).

Following trends is more comfortable and predictable. I will now illustrate this using the sector and assets ETF sets defined previously. This chapter will also introduce a specific, simple and efficient ...

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