FTSE 250 Momentum

Trading the FTSE 250 index based on momentum - buying when price is breaking to new highs (upward momentum) and selling when breaking to new lows (downward momentum). Uses trend filters and ATR-based stops.

FTSE 250 mid-caps trend more persistently, have higher volatility (15-25% more), and are less efficient than FTSE 100. This creates better momentum opportunities with more alpha potential.

Stop loss based on Average True Range (volatility measure). Formula: Stop = Entry - (ATR × 2.0) for longs. Automatically adapts to volatility - wider in volatile markets, tighter in calm markets.

Momentum trading accepts 40-55% win rate because average wins are 2-3× larger than average losses. Many small losses are offset by fewer but larger wins. Focus on expectancy, not win rate.

H1 or H4 for FTSE 250 momentum. Check Daily for overall trend direction. H1 catches intraday trends, H4 catches multi-day trends. Use multiple timeframes for confirmation.

Only trade in direction of 50-period MA. Above MA = longs only (buy breakouts to new highs). Below MA = shorts only (sell breakdowns to new lows). Significantly increases win rate by trading with the 'tailwind'.

Trailing stop: For longs, stop = Highest high since entry - (ATR × 2.5). Automatically rises as price rises, never falls. Locks in profits while letting winners run. Named after hanging from ceiling (highest point).

If price makes new high but RSI makes lower high (bearish divergence): Don't panic exit. Tighten stop slightly. Watch for price confirmation. If price breaks structure, exit. If continues, maintain position.

Total open risk across all positions. Example: 3 positions at 2% risk each = 6% portfolio heat. Limit to 5-10% max to survive correlated losses. If heat exceeds limit, don't add new positions.

FTSE 250 is sector-diverse. Identify leading sectors (outperforming index). Focus momentum trades when index momentum aligns with leading sector momentum. Avoid trades when leading sectors diverge from index.

Combines absolute momentum (is asset above its own trend?) and relative momentum (is it outperforming alternatives?). Only take position if BOTH are positive. Significantly reduces drawdowns vs single momentum.

Monitor: ADX level, market correlation, sector dispersion. In weak momentum regimes (ADX < 20, high correlation, low dispersion), reduce size or pause momentum trading. Resume when regime improves.

Optimize parameters on in-sample period (e.g., 2 years), test on out-of-sample (e.g., 6 months), roll forward and repeat. Prevents curve-fitting. Parameters should work across multiple out-of-sample periods.

Momentum crashes are rare but violent (e.g., 2009). Protection: Stop losses (always), volatility scaling (reduce size in high vol), diversification (not 100% momentum), drawdown protocols (reduce after 10-15% down).

Sharpe Ratio > 1.0 (return per unit volatility). Sortino Ratio > 1.5 (return per unit downside). Calmar Ratio > 1.0 (annual return / max drawdown). Max Drawdown < 20%. Profit Factor > 1.5.