Momentum strategy uses the trend to predict the future of a price. For instance, if the price of an asset has increased for the last 20 days, it is likely that this price will continue rising. The moving average strategy is one example of momentum strategy.

Momentum strategies assume that the future will follow the past by following an upward or a downward trend (divergence or trend trading). Momentum investment has been used for decades: buying low, selling high, buying high, and selling higher, selling the losers and letting the winners ride; all these techniques are the origin of momentum trading. Momentum investing adopts short-term positions in relation to financial products going up and sells them when they go down. When we use a momentum strategy, we try to be ahead of the market; we trade fast, and then we let the market come to the same conclusion. The earlier we realize that there is a change, the more profitable we will be.

When you start working on a momentum strategy, you need to select the assets you are going to focus on while considering the risk for trading these assets. You need to ensure entering at the right time, but also not changing position too late. One of the most important drawback of this kind of strategy is the time and the fees. If your trading system is too slow, you won't manage to capture the opportunity to make money before the competition. Aside from this problem, we have to add the transaction fees, which are not negligible. By the very nature of the momentum strategy, the accuracy of this model is very low if news impacts the market.

Advantages of the momentum strategy:

• This class of strategy is easy to understand.

Disadvantages of the momentum strategy:

• This class of strategy doesn't take into account noises or special events. It has a tendency to smooth out prior events.
• The transaction fees can be potentially high owing to the number of orders.