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Momentum and rotation
Why can short-term reversal and momentum both be true at once?
Short-term reversal
What it bets
What rose the most over the past few days up to about a month tends to give some back next. What fell the most tends to bounce.
How the rule is written
Rank by a very short formation period, go long the losers, and short the winners. Research around Jegadeesh in 1990 discusses this short scale. It uses the same kind of ranking as momentum over several months, with the sign flipped.
When it fails
Write the horizon wrong and the method runs backwards. Using a one-year return to trade short-term reversal buys the losers of intermediate-term momentum. That is not this rule.
Do not confuse it with
RSI(2) is short reversion on a single market, and it often adds a trend filter. Short-term reversal is the relative win and loss inside a basket, and the window is closer to several days up to a month.