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2020issue C0816-21

Construct a dual-series price momentum oscillator overlay

Two matching oscillator series on one pane turn relative strength into a construction problem. The same lookbacks, the same zero line, and the same signal-line turns become explicit rules rather than a ranked list.

  • Each oscillator series is a one-period percent price change, a 35-period custom exponential smoother, a scale factor of 10, and a 20-period custom exponential smoother.
  • The custom smoothing multiplier is 2 divided by the time period and does not add 1 to the period the way a standard exponential moving average does.
  • Matching 35, 20, and 1 settings on one pane let index or sector momentum be compared without a ranked list.
  • Momentum, centerline, and signal-line crossovers are the named tests. The oscillator can produce whipsaws and is specified to be used with other filters.
Entries in this reading3 entries
Current trackMomentum strategy103 readingsRelative Strength Index186 readingsMoving average449 readings

A same-chart overlay, not a ranked list

The compare price momentum oscillator is a same-chart overlay of two oscillator series. The construction places those series on one pane with matching 35, 20, and 1 settings so index or sector momentum can be compared without a ranked list.

Both traces share one scale. Relative strength is then read from the two PMO lines rather than from a ranking table.

How each PMO line is assembled

Each compared oscillator is built from a one-period percent price change, then a 35-period custom exponential smoother, a scale factor of 10, and a 20-period custom exponential smoother. The sample implementation uses a one-period percent change of the close and those same two smoothers and scale.

The finished trace is the PMO line: the twice-smoothed, scaled one-period rate-of-change series that is the main momentum trace.

In this construction, the relative strength index is an oscillator that converts one-period price change into a smoothed momentum series so two markets can be compared on the same scale.

Custom smoothing and the PMO signal line

The custom smoother uses a custom smoothing multiplier of 2 divided by the time period. It does not add 1 to the period the way a standard exponential moving average does.

Moving average, here, means that custom-multiplier exponential smoother applied twice to the rate-of-change series, plus a separate exponential average used as the signal line.

The PMO signal line is a 10-period exponential moving average of the oscillator line. It is defined to trail that line so turns can be marked. The sample implementation takes a 10-period exponential average of the second series, the 20-period output, as that signal.

Weekly PMO of the S&P 500 versus the NYSE TICK

A trader reading this overlay watches the S&P 500 oscillator relative to the TICK oscillator and to zero: it crossed both on the way into the late-2018 low and recrossed both on the spring 2019 rebound, while TICK momentum stayed nearly flat until a sharp catch-up after August 2019. Monthly points were read from the NinjaTrader weekly pane in the August 2020 Traders' Tips chart; the last TICK PMO is the printed 2.29.
A trader reading this overlay watches the S&P 500 oscillator relative to the TICK oscillator and to zero: it crossed both on the way into the late-2018 low and recrossed both on the spring 2019 rebound, while TICK momentum stayed nearly flat until a sharp catch-up after August 2019. Monthly points were read from the NinjaTrader weekly pane in the August 2020 Traders' Tips chart; the last TICK PMO is the printed 2.29.^SP500 vs ^TICK · Weekly · 2018-07-01T00:00:00.000Z to 2020-01-31T00:00:00.000Z

Both plots use the article defaults of 35 and 20 periods on weekly bars. Except for the labeled 2.29 finish on TICK, y-values are approximate raster readings (one decimal). The S&P 500 PMO finishes at the top of the displayed scale.

Crossovers as testable rules

A momentum strategy in this workflow is a procedure that turns entry, exit, and abstention into one testable rule set from compared oscillator lines, zero-line tests, and signal-line turns.

A bullish momentum crossover is one index oscillator line turning up through another. A bearish momentum crossover is the reverse turn through. That momentum crossover is read as a relative-strength change.

A bullish centerline crossover is the oscillator line moving above zero. A bearish centerline crossover is the oscillator line moving below zero. The centerline crossover marks a change from negative to positive momentum, or the reverse.

A bullish signal-line crossover is the oscillator line turning up through its signal line. A bearish signal-line crossover is the reverse turn through.

Crossovers are described as lasting from a few days to a few months, depending on the strength of the move.

Whipsaws and companion filters

The oscillator can produce whipsaws. A whipsaw is a short-lived crossover that reverses before a usable hold.

The construction treats that as a reason to combine the oscillator with other filters such as moving averages or chart patterns.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
48 of 51 in the Momentum strategy track
202042-45 pp.Next on Momentum strategyA multi-timeframe stochastic as a panel of weekly votersA 21-period stochastic can be computed on daily, weekly, bimonthly, quarter-quarterly, monthly, half-quarterly, and quarterly bars and shown together on one daily chart.
All readings on this track · 51 readings
  1. 1984Half-cycle differencing for momentum signals
  2. 1987Relative strength evaluation under competing optimization criteria
  3. 1988Weekly MACD as a two-clock momentum confirmation stack
  4. 1989Equal-weight zero-cross from smoothed spreads
  5. 1989Testing relative-strength-index reversal rules against trend continuation
  6. 1989Smoothed three-day futures filter for index option bounces
  7. 1989Cycle-length windows for momentum, Relative Strength Index, and stochastic construction
  8. 1991Filtered rally magnitude as a bull-regime breakout
  9. 1992Constructing true strength from double-smoothed momentum
  10. 1992Constructing a double-smoothed true strength index
  11. 1993When momentum structure and breadth break together
  12. 1993Constructing double-smoothed range and momentum oscillators
  13. 1993Constructing a two-parameter relative momentum index
  14. 1993Building a bounded momentum oscillator with RSI smoothing
  15. 1993Two-speed oscillators with divergence and trendline gates
  16. 1993Constructing a relative momentum index from the relative strength index
  17. 1994Constructing daily advance-decline breadth tools
  18. 1994Building a composite regime score from monetary climate and weekly trend
  19. 1994Averaging Relative Strength Index and the stochastic oscillator into one reversal oscillator
  20. 1995Dividend-yield regression as a hold versus momentum gate
  21. 1996Jump and hold filters for long-term Treasury yield direction
  22. 1997Constructing extendedness from a 10 percent swing filter
  23. 1997A range-expansion oscillator that can refuse its own stretch
  24. 1997RSI trend permission and Fibonacci pullback rules
  25. 1998Nested midpoint construction for a range-normalized oscillator
  26. 1999Evaluating Relative Strength Index momentum with zero-line and threshold rules
  27. 1999Treat RSI and momentum as three mechanical procedures
  28. 2000Thrust strength figure from moving-average swings
  29. 2001Constructing a non-range-bound balance of market power score
  30. 2004Cleaned breadth oscillator and new-high divergence: a swing-market case file
  31. 2004Evaluating advance-issues-momentum on a fixed-symbol-basket
  32. 2004Constructing a trend filter from two adjacent high-low windows
  33. 2006A dollar-versus-commodity extreme as a regime case
  34. 2008Zero-centered stochastic bands and bracket stops
  35. 2012Evaluating engulfing momentum across hold windows
  36. 2012Staged stops as one mechanical entry and exit procedure
  37. 2012Stacking a relative-strength-index forecast, a trend filter, and long-only momentum
  38. 2013Constructing fair-value filters from averages and momentum
  39. 2014Constructing a multi-window slope divergence entry
  40. 2015Bandedge trend filter construction with inverse crossover rules
  41. 2017Opposite rules for index price and volatility momentum
  42. 2018A three-state overlay that colors a trend only after the line clears the bar
  43. 2018Half-cycle relative-strength index with a Fisher map for cyclic reversals
  44. 2018Emotion as a rule input when momentum breaks
  45. 2018Two-bar body expansion as a momentum breakout construction
  46. 2019Pair a two-day high breakout with a volume-weighted exit on the same chart
  47. 2020Building reflex and trendflex cross and extreme entry rules
  48. 2020Construct a dual-series price momentum oscillator overlay
  49. 2020A multi-timeframe stochastic as a panel of weekly voters
  50. 2020Centerline crossovers that compare index momentums
  51. 2020Multi-timeframe stochastic voting as one mechanical rule
By fieldIndicators and filters682 readingsBy year202085 readings
All 103 readings tagged Momentum strategy
Also on Momentum strategy5 readings
1987Relative strength evaluation under competing optimization criteria1989Cycle-length windows for momentum, Relative Strength Index, and stochastic construction1989Testing relative-strength-index reversal rules against trend continuation1992Constructing true strength from double-smoothed momentum1993Building a bounded momentum oscillator with RSI smoothing