Limits to currency momentum trading

By Fredrik Arnold:This series of (now eleven) articles has investigated a momentum ETF trading strategy called "Hot Hands" as taught by Courtney Smith. Courtney bears no resemblance to the blonde screen actress, except by name. He is an author, money manager, educator and trading advocate. He has authored seven books, appeared on countless TV shows and spoken at hundreds of events.

My colleague, Charles Engel, has a new paper entitled The Real Exchange Rate, Real Interest Rates, and the Risk Premium, in which he tries to identify what characteristics an exchange rate model must possess in order to explain two stylized facts. ...The well-known interest parity puzzle in foreign exchange markets finds ... the high interest rate country tends to have the higher expected return in the short run.

Lars Frisell, 7 November 2012Measuring financial risk is difficult. But what lessons, if any, have we learnt from the current crisis? This column argues against a move to leverage ratios and instead proposes continuing to measure financial risk (despite the difficulties), but with higher capital charges for banks.

Thomas J. Feeney submits:Since Monday's blog post revisiting my ongoing speculation about the government buying stocks, I had dinner with a friend who once again characterized such a thought as “crazy.” And the chorus continues to grow of people who have said over the past year that it’s unconceivable that such an action could escape detection and publicity.

Scott's Investments submits:I previously detailed some basic portfolios as well as trading ideas. In an effort to be more user friendly, I track the portfolios monthly on my blog using Google Docs.

If you trade a momentum strategy as I do, your discipline in selling winners will always be more important than how you take entries. Buying into a position is not difficult and pattern recognition is a skill which can be learned relatively quickly; it’s just a matter of putting in the hours and having a decent eye. Most of the emotion you experience when trading does not take place when you buy a position; in most cases you are starting from a clean slate.

The S&P 500 Index closed above 1500 for the first time since 2007 on Friday, January 25, 2013, after rising for eight days in a row—the longest streak of daily gains since a nine-day run ended in 2004. Speculation has emerged that the long-awaited rotation by investors from bonds into stocks may finally have arrived and is powering the rally and, if so, that it has a long way to go.