Lesson 2 of 8
What momentum actually is
Momentum, in this context, is the premise these papers are built on: that an asset which has been rising tends to keep rising for a while, and one that has been falling tends to keep falling. These strategies act on that published pattern directly, rather than on any forecast of what markets will do next.
That distinction matters more than it sounds. Nothing here is an opinion about where markets are headed, and no one is reading the news. Each month the rule looks at how prices have already moved, sorts the assets by that, and acts. You could compute it by hand with a spreadsheet and a price history.
The strategies differ in how they measure “has been rising”. Most use a weighted blend of the last 1, 3, 6 and 12 months’ returns, which reacts quickly because the most recent month carries the heaviest weight. Others compare today’s price to its average over the past twelve months, which is slower and steadier. Neither is the correct answer; they are different settings on the same dial, and the strategy pages say which one each uses.
Weighted blend
The last 1, 3, 6 and 12 months’ returns, averaged together.
Price vs its own average
Today’s price compared to the average of the past twelve months.
HAA uses the blend in its unweighted form, so its most recent month carries no extra weight. LAA uses neither: it reads a macro gate rather than each asset’s own momentum, which is why it sits apart from the other five.
What momentum is not is a prediction. The pattern is a tendency measured across decades of history, not a rule the market is obliged to follow next month. It fails regularly — that is why the next lesson is about a second signal that decides when to stop trusting it.