When Momentum Works — and When It Fails

Momentum strategies have produced 40%+ annual returns in certain market regimes and severe double-digit losses in others. The discipline is knowing which regime you are currently operating in.

Why This Matters

Momentum is one of the most regime-dependent strategies in all of investing. In confirmed trending bull markets with orderly sector rotation, it produces extraordinary results. In choppy, range-bound markets or during sharp bear-market reversals, momentum portfolios suffer severe drawdowns — sometimes called "momentum crashes" — because every breakout fails and every stop is hit. Understanding regime conditions is as important as stock selection.