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2018issue C068-14

Five-rule technical rating as a rotation filter

A five-rule technical score, weighted to a maximum of 6, was used as a selection cutoff on S&P 500 names and as a time-limited guidepost after the signal. The write-up presents it as a list-narrowing filter rather than a complete strategy.

  • Each of the five conditions is a binary flag. Four count as one point and the market-direction rule counts as two, for a maximum score of 6.
  • The main selection cutoff is a score of 5 or higher. A perfect score of 6 is noted to cut the number of trades sharply.
  • The coded procedure buys when the cutoff is met and exits after a fixed bar count, then treats the score as a guidepost over holds from one to twelve months.
  • The score is a list-narrowing or position-review filter, not a complete trading strategy and not a permanent grade.
Entries in this reading3 entries
Current trackMoney Flow Index16 readingsRank rotation76 readingsMechanical trading system158 readings

How the score is built

A five-rule technical score can be assembled so each condition carries a weight of one except the market-direction rule, which is weighted two, for a maximum score of 6. The coded Mechanical trading system treats that score as a weighted sum of five binary flags.

The five conditions are a long-horizon Money Flow Index reading above zero, a close above a 100-period average, that average higher than four days earlier, fewer than seven closes below that average over 63 days, and a 100-day index exponential average that is flat or rising versus two days earlier. The market-direction condition is described as the most important of the five.

How the procedure trades

The main tests use a score of 5 or higher as the selection cutoff, while a perfect score of 6 is noted to cut the number of trades sharply. The coded procedure buys when the score meets the cutoff and exits after a fixed bar count rather than a separate sell signal.

The write-up treats the score as a time-limited guidepost after the signal, scanning holding windows from one to twelve months rather than treating the grade as permanent. The score is presented as a list-narrowing or position-review filter rather than a complete trading strategy.

What was tested

Consensus labels on S&P 500 names were mapped to a 1-through-5 scale and tested over five years with weekly rebalancing and four-week and three-month holding periods.

The technical score was applied to S&P 500 names over a ten-year window, holding one month or three months, filling at the next open, with no extra exit or stop rules and with commissions omitted for a buy-and-hold comparison.

Reward/risk by holding period after the buy signal

Traders should treat the five-rule score as a clocked filter: it beats an unfiltered S&P 500 basket on reward/risk for about eight months, peaks at a three-month hold, then the unfiltered basket pulls ahead by months 10–12. Bar heights were read from the article’s grouped chart; the one-month pair of 6.9 versus 1.8 is also given in the 10-year performance table.
Traders should treat the five-rule score as a clocked filter: it beats an unfiltered S&P 500 basket on reward/risk for about eight months, peaks at a three-month hold, then the unfiltered basket pulls ahead by months 10–12. Bar heights were read from the article’s grouped chart; the one-month pair of 6.9 versus 1.8 is also given in the 10-year performance table.S&P 500 stocks · 1 to 12 months after buy signal · 2008-01-02T00:00:00.000Z to 2018-01-02T00:00:00.000Z

The source used a score cutoff of 5 or more out of 6. Reward/risk is net profit divided by maximum system drawdown. Positions were $1,000 on a $300,000 book, filled at the next open, with no commissions.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
12 of 13 in the Money Flow Index track
20208-13 pp.Next on Money Flow IndexCombining money-flow, RSI, and breadth for dynamic pressure zonesThe unified market composite is a weighted linear mix of percent-B, an inverted equity put/call ratio, a McClellan oscillator, and money-flow index values at 50-day, 21-day, and 13-day lookbacks, then mapped with a relative-strength-index transform onto a zero-to-100 scale.
All readings on this track · 13 readings
  1. 1988Constructing tick-weighted money flow and price divergences
  2. 1989Four-state money-flow-index as permission for a next-bar breakout-system
  3. 1989Constructing a suggest-then-confirm Money Flow Index
  4. 1993Five-rung money flow from signed print volume
  5. 1993Physics analogies for building cycle and money flow indicators
  6. 1994Keep a wave count as a draft until money flow and a trendline agree
  7. 1999Take the rectangular-base breakout from money-flow confirmation, not from a late strength average
  8. 2004Constructing a volume-flow rule from money flow
  9. 2006Classify the regime before the bar read
  10. 2015Constructing a bounded money-flow oscillator from range and volume
  11. 2016Combining RSI, moving averages, and money flow
  12. 2018Five-rule technical rating as a rotation filter
  13. 2020Combining money-flow, RSI, and breadth for dynamic pressure zones
By fieldSystem design117 readingsBy year201898 readings
All 16 readings tagged Money Flow Index
Also on Money Flow Index5 readings
1988Constructing tick-weighted money flow and price divergences1989Constructing a suggest-then-confirm Money Flow Index1989Four-state money-flow-index as permission for a next-bar breakout-system1993Five-rung money flow from signed print volume1993Physics analogies for building cycle and money flow indicators