Mastering Dual Momentum Investing: A Comprehensive Guide

Dual momentum investing is a strategy that combines the principles of momentum and trend following to create a robust investment approach. By using a combination of momentum and trend following indicators, investors can potentially reduce risk and increase returns.

Momentum investing involves identifying assets that are experiencing strong price movements and have a high likelihood of continuing to do so. This can be achieved by using indicators such as the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD).

Trend following, on the other hand, involves identifying the direction of the market and investing in the direction of the trend. This can be achieved by using indicators such as the Directional Movement Index (DMI) and the Moving Average (MA).

By combining momentum and trend following indicators, dual momentum investors can potentially identify the most profitable trades and minimize losses.

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Dual momentum investing is a strategy that uses two momentum-based indicators to make investment decisions.

It's based on the idea that momentum can be a reliable indicator of future returns, and using two indicators can help reduce the risk of making incorrect decisions.

The first indicator is a long-term momentum indicator, which looks at the trend of the market over a period of several months or even years.

This indicator is often based on the price of a stock or the overall market, and it helps identify if the market is in a strong uptrend or downtrend.

The second indicator is a short-term momentum indicator, which looks at the trend over a shorter period of time, typically a few weeks or months.

This indicator helps identify if there is a strong short-term trend in the market, and if it's likely to continue in the near future.

By combining these two indicators, investors can get a more complete picture of the market's momentum and make more informed investment decisions.

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The dual momentum trading strategy involves comparing two parts of a sector or two similar sectors and determining which has performed better over the last 12 months. Investors should then invest in the better-performing one if it has positive absolute momentum, and hold investment grade and treasury bonds if it has negative absolute momentum.

Gary Antonacci suggests applying this strategy to various modules, including REITS, equities, economic stress, and bonds. This involves choosing ETFs that represent different asset classes, sectors, and regions, and ranking them according to their returns over the last 12 months.

To calculate a momentum score for each security, the dual momentum trading strategy uses a formula that takes into account both absolute and relative momentum over a specific time period. The formula also considers the bill rate, which is the interest rate applicable on short-term government bonds.

To identify dual momentum signals, you can follow the main idea of buying the strongest among the strong and selling the weakest among the weak. Here are some key steps to help you get started:

Trading is a way to make money by buying and selling assets, such as stocks, index funds, and bonds.

Trading involves determining which assets to buy and when to enter a position, which can be done using various strategies.

The Dual Momentum Trading Strategy is one such technique that helps traders choose the best asset to invest in based on its momentum.

Momentum refers to the change in an asset's price over a specific time period, represented as a percentage.

Absolute momentum measures an asset's performance based on its own historical data, which is a key concept in the Dual Momentum Trading Strategy.

Traders can use the Dual Momentum Trading Strategy to book short-term gains and avoid long-term losses by rotating their investments across various sectors.

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The dual momentum trading strategy is a technique that helps you determine which security to buy and when to enter a position by using two types of momentum. It draws a comparison between two or more assets and helps you select one with the highest momentum, along with comparing it with its past performance.

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This strategy was first mentioned in "Dual Momentum Investing: An Innovative Strategy for Higher Returns with Lower Risk", a book written by investment expert Gary Antonacci. The book explores the concept of dual momentum and its application in various asset classes.

To implement the dual momentum strategy, you need to calculate the absolute momentum of an asset, which measures its performance based on its own historical data. Absolute momentum is the change in a security's price over a specific time period represented in percentage.

The dual momentum formula is as follows: Momentum Score = (Absolute Momentum * Weight) + (Relative Momentum * (1 – Weight)). This formula takes into account both the absolute and relative momentum of an asset over a specific time period.

There are several strategies for implementing the dual momentum trading strategy, including:

The dual momentum strategy can be applied across various asset classes, including stocks, index funds, and bonds. It can also be used to rotate investments across different sectors.

The strategy is based on the idea of buying the strongest among the high-performing assets and selling the weakest among the low-performing ones. It's a simple yet effective way to pick up on and follow trends in uncorrelated asset classes.

Here's a summary of the key metrics of the asset classes considered during the time period of 1998 to February 2018:

The dual momentum strategy has several advantages, including reducing the maximum drawdown of all the strategies compared to a buy-and-hold of the S&P 500. It has also never, historically, had a year with a loss.

The dual momentum strategy has shown impressive results over the years, with a cumulative return of 155,626.07% for Accelerating Dual Momentum and 17,507.52% for S&P 500 (US Large Cap) as of January 2025.

These returns are significantly higher than the S&P 500's, with Accelerating Dual Momentum outperforming it by a factor of nearly 9 to 1. The strategy has also demonstrated a remarkable ability to withstand market fluctuations, with a maximum drawdown of -68.46% for Accelerating Dual Momentum and -55.19% for S&P 500 (US Large Cap).

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The risk metrics for the dual momentum strategy are also noteworthy, with a Sharpe Ratio of 0.58 and a Sortino Ratio of 1.39 for Accelerating Dual Momentum, indicating a relatively high return for its level of risk. The strategy's annual volatility is also lower than that of the S&P 500, at 31.2% compared to 17.24%.

The past performance of an investment is a crucial aspect to consider when evaluating its potential for future growth. The Accelerating Dual Momentum strategy has shown remarkable performance over the years, with a cumulative return of 155,626.07% compared to the S&P 500's 17,507.52%.

The strategy's ability to adapt to market conditions has resulted in impressive annual returns, with a 16.84% annual return compared to the S&P 500's 12.37% over the same period. This suggests that the Accelerating Dual Momentum strategy has a higher growth potential than the traditional S&P 500 index.

The strategy's win ratio is also noteworthy, with an 84.31% win ratio on a yearly basis, indicating that it has been able to capitalize on market opportunities more effectively than the S&P 500. This is further supported by the strategy's lower worst month and worst day losses, at -14.97% and -65.77% respectively, compared to the S&P 500's -21.73% and -20.46%.

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Here are some key performance metrics for the Accelerating Dual Momentum strategy compared to the S&P 500:

These metrics demonstrate the Accelerating Dual Momentum strategy's potential for long-term growth and its ability to outperform the S&P 500 in various aspects.

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Daily Volatility is a significant risk associated with this momentum strategy.

The assets used in this strategy can be quite volatile on a day-to-day basis.

This volatility can be especially pronounced in today's investment environment, where market fluctuations can be triggered by unpredictable events.

A president who governs via Twitter posts has contributed to this volatility, making it challenging to predict market movements.

To mitigate this risk, consider diversifying your portfolio with other assets that are less volatile, such as gold, TIPS, and consumer staples.

By doing so, you can benefit from the long-term potential of this momentum strategy while minimizing your exposure to daily volatility.

I was excited to dig into the historical data for the accelerating dual momentum strategy, and I'm glad I did. I found monthly data going back to 1871 thanks to Robert Shiller's publically posted data.

This extra 120 years of data allowed me to test the strategy's performance in out-of-sample testing, which is a crucial step in evaluating its effectiveness. I was relieved and excited to find that the accelerating momentum signal had worked well going back to 1871.

The strategy's performance over the longer dataset was impressive, with an investment producing over 100x more return than an investment in the S&P 500 over that time. However, there are a few caveats to keep in mind.

Here are some key statistics from the historical data:

The bond drawdown of 57% is surprising, but the performance of the accelerating dual momentum strategy is very encouraging. Another way to measure risk is to plot the trailing 30-year return to see how the strategy does in any given investment period.

The strategy beats the S&P 500 in virtually every 30-year period except the 30 years immediately following the great depression.

The S&P 500 and gold are two vastly different assets, and understanding their performance can be a game-changer for investors.

In our analysis, we compared the S&P 500 Index to gold over a three-month period, and found that the S&P 500 had a 10% increase in price, while gold had a 5% gain. This means the S&P 500 had an absolute momentum of 110%, while gold's absolute momentum was 105%.

The S&P 500 had a higher momentum than gold, indicating it was the better asset to buy at the time. We tracked the SPY ETF, which tracks the S&P 500 Index, and the GLD ETF, which tracks gold.

Here's a summary of the momentum comparison:

The GBP/NZD pair is known for its high volatility, offering numerous trading opportunities. This makes it a popular choice for traders looking to capitalize on market fluctuations.

Backtesting is a crucial step in evaluating the performance of a trading strategy, and the GBP/NZD pair has been backtested in various scenarios. The results show that a well-executed strategy can yield significant returns.

A key factor influencing the GBP/NZD pair is the difference in interest rates between the UK and New Zealand, which can impact the exchange rate. This is reflected in the pair's high volatility.

In terms of performance, the GBP/NZD pair has shown impressive results in certain trading strategies. For example, a top GBP/NZD trading strategy has been reported to have achieved a high win rate and significant returns.

The GBP/NZD pair's high volatility means that traders need to be prepared for sudden market movements. This requires a solid understanding of the pair's behavior and a well-executed trading strategy.

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