Momentum Investing Explained: Trend Following Educational Framework
In the bustling financial district of Karachi, near the iconic Pakistan Stock Exchange (PSX) building on I.I. Chundrigar Road, a different kind of physics governs capital flows. Just as the Indus River carves its path through the mountains—following the line of least resistance—money in Pakistani markets tends to persist in its direction of motion.
Introduction: The Physics of Markets in Pakistan In the bustling financial district of Karachi, near the iconic Pakistan Stock Exchange (PSX) building on I.I. Chundrigar Road, a different kind of physics governs capital flows. Just as the Indus River carves its path through the mountains—following the line of least resistance—money in Pakistani markets tends to persist in its direction of motion.
Momentum investing is the financial equivalent of Newton's First Law of Motion: An asset in motion tends to stay in motion . For decades, Western academics dismissed this as a behavioral anomaly. However, for investors in the Pakistan Stock Exchange (PSX), momentum is not an anomaly—it is a structural reality driven by remittance flows, IMF program announcements, political cycles, and the rapid transformation of Pak...
This Trend Following Educational Framework is designed to move beyond theory. Whether you are trading PSX heavyweights like Oil & Gas Development Company (OGDC), Pakistan Petroleum Limited (PPL), Fauji Fertilizer Company (FFC), or analyzing broader KSE-100 or KSE-30 indices, this guide will explain how to systematically capture price momentum while avoiding the psychological pitfalls of "buying high and selling...
Part 1: The Core Philosophy of Momentum Investing 1.1 What is Momentum Investing? Momentum investing is a strategy that seeks to capitalize on the continuance of existing market trends . Unlike value investing (buying cheap, selling fair) or contrarian investing (buying losers), momentum is a pure trend-following approach.
The Premise: Stocks that have performed well over the last 3 to 12 months tend to continue performing well over the next 1 to 6 months.