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Cross-Sectional Currency Momentumrank them, hold the winners, short the losers

Evidence: StrongProfessionalMomentum · Cross-sectional

Every other momentum page in this book asks whether this instrument is trending. This one asks a different question: of the currencies available, which have been strongest, and which weakest?

That difference matters. A cross-sectional strategy is close to market-neutral by construction — it is long and short at the same time — so it can work in a period when every currency is falling against the dollar, which a single-instrument trend rule cannot.

The evidence is for return persistence — instruments that have gone up tend to keep going up for a while. Every page here is one way of measuring that, and the measurement is a choice while the effect is the finding.

Category
Momentum · Cross-sectional
Timeframe
Monthly ranking · held one to three months
Suitable pairs
A basket — G10 at minimum, more is better
Session
Month-end close
Indicators / tools
Trailing returns over 1, 3, 6 and 12 months · realised volatility for sizing

Valid setup

MO-06 · CROSS-SECTIONAL CURRENCY MOMENTUM — THE COMBINED BOOK long the top third, short the bottom third · the chart is the book's own value, not any one pair LONG / SHORT 98.4 100.9 103.4 105.9 108.5 111.0 113.5 RANKING 1 — held a month RANKING 2 — two names replaced RANKING 3 20-period mean of the book start no target — the next ranking is the exit 1 2 3 rebalance rebalance 100.0 109.4 ① Ranked by trailing return, not by any chart pattern ② Long and short at once — close to market-neutral ③ One lookback, chosen and written down in advance ④ Rebalanced monthly, sized by volatility ⑤ No per-leg stops — portfolio rules only ⑥ Expect droughts. The published record has them

Exact rules

Entry

  • At each month end, rank every currency in the basket by its trailing return against a common base.
  • Long the top third, short the bottom third, sized to equal volatility rather than equal notional.
  • The lookback is a genuine choice: one month behaves like reversal, twelve like classic momentum. Pick one, write it down, and test the others separately rather than blending them into a composite that cannot be explained.
  • Rebalance monthly. Weekly rebalancing adds cost without adding signal at this horizon.

Stop loss

  • No per-leg stop in the classic form. Risk control is diversification, volatility sizing and a portfolio-level drawdown rule.
  • If you want stops, apply them at the portfolio level — cut the whole book after a set drawdown, as in the risk book.
  • Total risk 2%–4% across the whole structure.

Take profit / exit

  • No target. The ranking replaces positions each month and that is the exit.
  • Expect long flat stretches. Cross-sectional momentum in currencies is not a smooth series and the published results include multi-year droughts.
  • Combine it with carry if you run both — the two are largely unrelated, which is the point of the multi-factor page in the carry book.

Build Cross-Sectional Currency Momentum

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Trading carries risk and most retail accounts lose money. Nothing on this page is financial advice or a recommendation to trade. The chart is an illustration of the rules on constructed candles — it is not a record of a trade and not a backtest.