Unveiling the Horizontal Momentum Strategy: How to Capture the Strongest Tracks in Crypto Assets - Screening Rules and Practical Guide

Cross-Sectional Momentum Strategy ( Through systematic screening of the short-term best-performing crypto assets, utilizing the market rule of "winners keep winning, losers keep losing" to achieve excess returns. This article deeply analyzes its core logic: 1) Ranking of 7/30-day rise locks in the leading coins; 2) Triple filtering of liquidity/market capitalization/listing time to avoid risks; 3) Periodic rebalancing ensures strategy discipline. Combine on-chain data (TVL, active addresses) to verify the authenticity of momentum, supplemented by strict position management (single coin risk <3%), to provide investors with a structured trend trading framework. Uncover why simple strategies continue to be effective in the inefficient crypto market.

Core Logic: The Market Rule of Winners Always Winning The horizontal momentum strategy is based on a simple yet powerful market principle: assets that have performed well recently tend to continue to outperform the market, while assets that have performed poorly tend to lag behind. Its core operation:

1. Regular Ranking: Sort all tokens' yield rates according to a preset period (e.g., 7 days/30 days)
2. Long Position: Buy the top 3-5 leading tokens.
3. Short the tail (optional): Short the tokens ranked at the bottom (be cautious of funding rate loss) Unlike traditional trend following, this strategy focuses on the relative performance between assets rather than the absolute price direction.

Why is the crypto market applicable? Three core advantages

1. Herd Effect Becomes Apparent: Retail FOMO sentiment drives funds into coins that surge in the short term (e.g., SOL's 40% weekly rise attracts trend-following investors)
2. Market Inefficiency: Slow information digestion (positive news can still drive sustained rises one month after release)
3. Short Squeeze Mechanism: A surge triggers short covering, creating a self-reinforcing loop (such as the 2023 SUI case)

Five-Step Strategy Building Method

1. Cycle Screening:
   • Every Monday, select the top 50 tokens with the highest rise over the past 7/30 days.
   • Data source: CoinMarketCap
2. Top Selection:
   • Select the top 3-5 to build a portfolio
   • Position allocation: equal weight > inverse volatility weighting > return weighting
3. Risk Filtering:
   • Liquidity: Daily trading volume > $10 million
   • Listing Time: Online > 30 days
   • Market capitalization threshold: > $20 million
   • Category Focus: Limited to DeFi/AI/Meme and other tracks
4. Discipline Execution:
   • Concentrated orders within 2 hours reduce slippage
   • Prefer high liquidity CEX (such as Gate)
5. Regular Rebalancing:
   • Strictly adjust according to the cycle (weekly/monthly)
   • Eliminate the positions in the top 20%, even if there are losses.

Risk Control: The First Rule of Survival

• Single Coin Risk: ≤ 3% of Total Funds
• Stop Loss Strategy:
  • Fixed ratio stop loss (-15%~20%)
  • Technical stop loss (breakthrough previous low/volatility threshold)
• Take Profit Skills: Partially take profit when floating profit is 2-3 times the stop loss amount.
• Maximum Drawdown: Pause strategy if total funds draw down by 15%

On-chain Data Enhancement: Identifying Real Momentum Verify the reasonableness of price rise by combining on-chain indicators:

• TVL Trend: Is the total locked value growing in sync (e.g., the surge in SUI's TVL in 2024 indicates real demand)
• Active Address: Whether daily active users continue to rise
• Stablecoin Reserves: An increase in the exchange's stablecoin balance indicates buying pressure.
• Number of Transactions: On-chain interaction frequency reflects ecosystem vitality
• (Data source: DeFiLlama)

Advanced Applications

• Sector Rotation: Implement momentum strategies for DeFi/L1/Meme and other sectors.
• Multi-period Combination:
• 7-Day Momentum Strategy (Short-Term)
  • 30-Day Momentum Strategy (Medium-term)
• Multi-Factor Screening:
  • 7-day rise > 15%
  • TVL 30-day growth > 10%
  • Active Addresses rose week-on-week

The Harsh Reality: The Dark Side of Strategy

1. Shorting Costs: Shorting tail tokens faces high funding rates (case in point: shorting Pi Network incurs a funding rate of 12.5% over six months).
2. Liquidity Trap: Low market capitalization coins experience drastic rises and falls, making transactions difficult.
3. Trend Reversal: Full strategy drawdown at the end of a bull market (can draw down 30%+).
4. Exchange Risk: Small exchanges have suspicions of spike liquidation.

Practical Psychological Construction

• Anti-Human Operations: Dare to chase the rise ("expensive" can be more expensive), decisively cut the fall ("cheap" can be cheaper)
• Accepting Losses: A 30% weekly loss rate is within the normal range.
• Eliminate Subjective Interference: Trust System > Trust Intuition

Conclusion: The horizontal momentum strategy has significant advantages in a retail-dominated and inefficient crypto market, fundamentally capturing the "capital siphoning effect" in a systematic way. The key to success lies in the three disciplines: strict selection (Liquidity > $10 million), mechanical rebalancing (refreshing the portfolio weekly), and risk control (single coin < 3%). Investors need to have a clear understanding: 1) shorting tail tokens is costly, and ordinary investors should focus on going long on leading tokens; 2) on-chain data verification can enhance strategy win rates; 3) withdrawal protection should be activated at the end of a bull market. Historical data shows that investors who strictly adhere to these principles can achieve an annualized return of 50-100%, but they must endure a 20-30% phase drawdown. This strategy is not a shortcut to getting rich quickly but a way of life that continuously accumulates small victories to achieve greater wins.

(Source: FXEmpire)