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Strategy remarks:
The adopted methodology says nothing about how stock valuations will behave in the future — it is based on historical data and shows calculations derived from historical data.
Strategy Description — Filozof Advanced Equity Momentum (FAEM)
Why the strategy works and how it enhances classical momentum effectiveness
Why the Filozof Advanced Equity Momentum strategy works and its advantage over standard momentum
The Filozof Advanced Equity Momentum (FAEM) strategy is based on one of the strongest, best-documented, and most repeatable market anomalies — the momentum anomaly. However, FAEM goes a step further: it intensifies momentum, filters weak signals, reduces false breakouts, and minimizes exposure to assets with weak trend quality and high volatility.
Filozof Advanced Equity Momentum – Step by Step
Discover Filozof Advanced Equity Momentum! In this video, I explain how this method works, why it attracts the attention of the world’s best investors, and how you can apply it in your own portfolio.
Momentum from two exponential moving averages — a more "alive" signal
FAEM calculates momentum as the ratio between a faster exponential moving average (approx. 6 months) and a slower EMA (approx. 12 months).
Why this works?
- EMA reacts faster than SMA, catching trend changes earlier.
- The 6M/12M relation separates true trends from noise.
- Momentum signals are cleaner, more stable, and more adaptive than classic momentum.
Filter: inverse volatility
Even the best momentum can be destroyed by highly volatile stocks and false breakouts.
- stocks with "explosive" volatility,
- pump&dump stocks,
- stocks with artificial breakouts.
FAEM applies a penalty for high volatility — lower volatility stocks get higher weight.
Why this works:
- Reduces risky "rocket-to-ground" stocks.
- Increases share of stable trends.
- Smooths the capital curve.
- Builds a more “fund-style” investing approach.
Effect: higher returns with lower risk.
Filter: minimum momentum threshold
FAEM invests only when momentum exceeds a specified threshold.
- Momentum > 30
- Momentum greater than the market average.
- Momentum greater than the sector median.
Why it works?
- Eliminates sideways-trending stocks.
- Reduces false breakouts.
- Focuses on stocks with real buying momentum.
Dynamic stock weighting – FAEM advantage
FAEM does not use equal-weight — weights depend on inverse volatility.
Why it works?
- Stable stocks get a higher weight.
- The portfolio tilts towards winners.
- Reduces risk thanks to low-volatility weighting.
This is a mathematical optimization of momentum.
Quarterly rebalancing — not too often, not too rarely
Momentum works best when signals are updated periodically, but not too often, to avoid noise and costs.
- Reduces the impact of market noise.
- Keeps winners longer.
- Cuts losers faster, but without impulses.
Why FAEM works in PRACTICE
Increases the winning side of the outcome distribution
- In momentum, usually 20–30% of stocks generate 70–90% of portfolio profits.
- FAEM, thanks to filters and weights, maximizes the share of these 20–30% of winners.
- Minimizes the impact of stocks that drag down performance.
Eliminates junk momentum
- Regular momentum picks up pump & dump, high-risk microcaps, and stocks with unrealistic growth.
- FAEM removes them using volatility filters.
Works in different market conditions
- Buys trends during bull markets,
- Moves to cash or bonds during bear markets,
- Uses dynamic filters, so it suffers less during reversals.
Why is the practical effect so strong? Thanks to this, FAEM has a higher Sharpe and Sortino ratio than regular momentum.
Why FAEM works thanks to the momentum anomaly?
FAEM works, because:
- It leverages the fundamentals of momentum.
- Removes weak, random, one-off trends.
- Focuses exposure on high-quality trends.
- The volatility filter removes toxic moves.
- Weights are proportional to trend stability.
- Acts like momentum, but with an internal risk control mechanism.
Summary — why FAEM works
- It is based on the strongest market anomaly — momentum,
- It uses the “healthy” part and eliminates weak points,
- Adds quality and signal stability filters,
- Properly assigns weights and controls volatility risk.
W efekcie: dostajesz strategię, która jest bardziej stabilna, bardziej odporna na odwrócenia i historycznie bardziej dochodowa niż klasyczne momentum.
WHY DOES THE MOMENTUM ANOMALY WORK?
How the Momentum Anomaly Works and Why It Can Give You an Edge in the Market
Did you know there is a market strategy that has outperformed the market for decades and is used by the most successful investors worldwide? In this episode, we uncover the strongest market anomaly few people talk about: the Momentum Anomaly.