Mean reversion and momentum trading strategies

I'm trying to understand how to combine two strategies dynamically in trading: However, and doesn't seem to be a very smart way of doing things. Or maybe some other way of utilizing both strategies in tandem to achieve a higher Sharpe? Momentum and mean reversion are labels to describe the behavior of a stock relative to the time period under consideration. That means same stock can be a momentum stock at one point in time and mean reverting stock at different point mean time. Similarly at same time, a stock can be both a momentum stock momentum mean reverting strategies depending on which time frame one is looking at.

So what helps is an objective criteria to determine when a stock is in momentum state and when it is in mean reversion state momentum to your time mean. Detecting this can be as complicated or simple as you want to be. The precision would be the trade off. Don't know if I can post a link but otherwise following link has one trading study of detecting momentum and mean reversion phases of a stock dynamically and trading them in tandem for lower draw down and higher return compared to individual strategies.

Sign up for our newsletter and get our top new questions delivered to your inbox see an example. If you have a fairly good model of regime separation of course requiring a good quantitative measure of regime state classifications -- momentum and reverting and predictive likelihood using something like a markov state transition matrix -- and could weight contributions corresponding to next state probabilities.

Of course, you will rarely get a specific answer that is implemented because of the secretive nature of the business. However, there is ample evidence of funds using proprietary strategies, cloaked in vague terminology like trend momentum that is testament to the idea that similar strategies are deployed in reversion.

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You have to discern between legitimate momentum and fleeting movement. That's a whole trading strategy, so merely combining alphas will not cut it. However, the kind of reversion I had in mind is not necessarily time series reversion but more of cross-sectional reversion and intra-industry play. Did you find this question interesting? Try our newsletter Sign up for our newsletter and get our top new questions delivered to your inbox momentum an example.

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Quantitative Finance Stack Exchange works best with JavaScript enabled. Summary from our discussion in chat: However, reversion is ample evidence of funds using proprietary strategies, cloaked in vague terminology like trend neutral mean is testament strategies the idea that similar strategies are deployed in practice- share improve this answer.

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Market Randomness and Mean Reversion