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2007issue C061-2

Building a momentum system with relative strength and trailing exits

This archive article sets out a historical momentum-strategy construction. It binds a twelve-month market-relative strength baseline to a short confirmation stack and a no-delay trailing-exit so entry, abstention, and exit can be tested as one procedure.

  • The momentum-strategy construction enters names that have already advanced and aims to exit only at a still-higher price, rather than buying weakness.
  • Candidate selection uses five filters together: a twelve-month relative-strength-index baseline, earnings-momentum, revenue-growth, return-on-equity, and volume-confirmation.
  • The trailing-exit treats any delay as unacceptable and closes on adverse news, downward guidance, a downward revenue revision, a declining relative-strength reading, or a break in the share-price advance.
  • The construction is labor-intensive screening plus paying a premium for already-strong names, and it is described as applying mainly in rising markets.
Entries in this reading3 entries
Current trackTrailing exit18 readingsMomentum strategy103 readingsRelative Strength Index186 readings

A constructed long procedure

The momentum-strategy is a constructed long procedure that enters names already in a strong advance and holds only while that advance remains intact, instead of waiting for a cheap entry. The construction enters names that have already advanced and aims to exit only at a still-higher price, rather than buying weakness.

Candidate selection is built from five listed filters used together: relative strength versus the market, earnings-momentum, revenue-growth, return-on-equity, and volume.

A twelve-month market-relative baseline

The relative-strength-index is a quantitative baseline that compares a name’s ordered price path with the market over a fixed twelve-month lookback and keeps only names that have already outperformed that baseline. The baseline uses that twelve-month market-relative window and keeps names that have already outperformed over it.

Five filters used together

Earnings-momentum first requires a positive surprise in the latest quarter, then year-over-year earnings-per-share growth of 12% to 15%.

Revenue-growth requires consistent quarter-to-quarter and year-to-year growth. Sales must keep expanding from quarter to quarter and from year to year.

Return-on-equity is a profitability screen that prefers names producing a high profit on shareholder capital.

Volume-confirmation requires rising participation and rising share turnover. It excludes very low-volume names because they complicate a later sale.

A trailing exit with no delay

The trailing-exit is a sell rule that follows the position after entry and forces an immediate close when news, guidance, revenue revisions, or the relative-strength baseline deteriorate. The construction treats any delay as unacceptable and sells on adverse news, downward earnings guidance, downward revenue revision, or a declining relative-strength reading.

After entry, a consistent share-price advance is required. A break in that advance is itself an exit condition.

A losing position is closed so capital is free for the next candidate. The premium already paid or hoped-for later growth is not used as a reason to stay.

Labor, premium, and rising markets

The full construction is described as labor-intensive screening plus paying a premium for already-strong names, and as applying mainly in rising markets.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
11 of 18 in the Trailing exit track
201334-38 pp.Next on Trailing exitWhen buy and hold needs a sell ruleA close beneath a weekly support trendline is a candidate trend-change signal, not an automatic sale.
All readings on this track · 18 readings
  1. 1988Constructing a mechanical trend system with independent trailing exits
  2. 1991Write a staged RSI exit book with trailing stops
  3. 1993Evaluating filter-trigger trailing exits after breakouts
  4. 1995Weekly-close breakout entry and trailing exit in Eurodollars
  5. 1996Evaluating moving-average turn entries and slope exits
  6. 1997Precommit an equity-risk cap and a profit-retracement exit
  7. 1998Exit stops before entries
  8. 1998Exit rules evaluated with a fixed random entry
  9. 2002Construct the stay-or-flatten decision before entry
  10. 2006Audit the stop, trail, and risk-reward stack as one procedure
  11. 2007Building a momentum system with relative strength and trailing exits
  12. 2013When buy and hold needs a sell rule
  13. 2013A mechanical trend toolkit that turns screens into one entry-exit procedure
  14. 2014Is a two-period relative strength index, a channel breakout, and a trailing exit one long-only procedure?
  15. 2016Trend-aligned option entries and trailing exits
  16. 2017Monthly three-black candles as a trailing exit
  17. 2018Evaluating profit-taking and reentry in trend following
  18. 2020Treat the zigzag threshold as a volatility-scaled construction variable
By fieldTrend and mean reversion93 readingsBy year200773 readings
All 18 readings tagged Trailing exit
Also on Trailing exit5 readings
1991Write a staged RSI exit book with trailing stops2014Is a two-period relative strength index, a channel breakout, and a trailing exit one long-only procedure?1988Constructing a mechanical trend system with independent trailing exits1993Evaluating filter-trigger trailing exits after breakouts1995Weekly-close breakout entry and trailing exit in Eurodollars