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1997issue C041-4

A midpoint rate-of-change test for bond trend follow-through

After a swing of at least 4 points qualifies as a price trend, each completed move is counted in days, cut into two equal halves, and scored by whether average daily rate of change is higher or lower in the second half. The historical review applied that split to closing prices on a rollover-adjusted continuous Treasury bond futures series.

  • Rate of change is the difference between the current price and a prior price, divided by the number of days in the lookback, and is used as the average daily momentum reading.
  • Reactionary highs and lows are marked from closing crosses of a 25-day moving average, and a price trend is a successive swing of at least 4 points.
  • Trend-bisection splits a completed trend into two equal day-counts and asks only whether second-half average daily rate of change rose or faded.
  • A market trough can form after momentum has slowed toward zero or after it has sped up, so the momentum signature at a bottom is not unique.
Entries in this reading3 entries
Current trackRate of Change50 readingsTrend following89 readingsMomentum strategy103 readings

Momentum as average daily rate of change

Price momentum is computed as rate of change: the difference between the current price and a prior price, divided by the number of days in the lookback. Momentum is defined as average daily rate of change. A 53-tick rise over 10 sessions equals 5.3 ticks per day.

Reactionary extremes and the 4-point price trend

Successive reactionary highs and lows are marked from closing crosses of a 25-day moving average. A reactionary high is the highest close while price was above that average, labeled after a later close back below it. A reactionary low is the lowest close while price was below that average, labeled after a later close back above it.

A downtrend is a successive high-to-low distance of 4 points or more. An uptrend is the same 4-point distance from a successive low to high. That swing is the price trend, starting at the earlier extreme and ending at the later extreme.

Trend-bisection

Each completed trend is counted in days, cut into two equal halves, and scored by whether the second-half average daily rate of change is higher or lower than the first half. Trend-bisection is that cut-and-compare step.

The historical review used closing prices on a continuous Treasury bond futures series adjusted so contract rolls did not create gaps. That series is a rollover-adjusted continuous contract.

In a 10-calendar-year sample the series contained 48 trends. Of those trends, 68.8% had a lower rate of change in the second half and 31.2% had a higher rate.

Two downtrend illustrations

In the July to August 1995 downtrend illustration, 13-day halves moved at -10 ticks then -5.5 ticks per day, so decreasing momentum preceded the August 11 trough.

Through the July 21 short-term low, second-half daily change of -27.4 ticks exceeded first-half -6.3 ticks, so that bounce was classified as a pause rather than a finished trend.

A market trough can form after momentum has slowed toward zero or after momentum has sped up, so the momentum signature at a bottom is not unique.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
29 of 46 in the Rate of Change track
19971-3 pp.Next on Rate of ChangeConstructing a short-rate-adjusted equity momentum filterDivide a broad equity index by the three-month commercial-paper yield to form the rate-adjusted equity series.
All readings on this track · 46 readings
  1. 1985Constructing excess and momentum difference-curve oscillators
  2. 1988Five reading rules for smoothed indicator charts
  3. 1989Momentum overlays that speed moving-average oscillators
  4. 1990A laboratory template that constructs Rate of Change as a pane module
  5. 1991Volume-scaled rate of change as a momentum construction
  6. 1991Three-indicator market overview from tape, sentiment and rates
  7. 1991Three-component trend model with rate-of-change filters
  8. 1992A KST oscillator from a weighted rate-of-change stack
  9. 1992Four-window weighted rate-of-change composite
  10. 1992Constructing multi-span smoothed rate-of-change filters
  11. 1992Constructing a four-horizon summed rate of change
  12. 1992Constructing KST from four weighted smoothed rates of change
  13. 1992Constructing a composite from weighted smoothed rates of change
  14. 1992Three-horizon KST maturity alignment
  15. 1992Construct a bond-led dividend-to-bond-yield regime first
  16. 1992Constructing relative-strength KST from weighted rate-of-change
  17. 1993Constructing a volume oscillator from average ratios and smoothed rate of change
  18. 1994Gold as a cycle clock for commodities and yields
  19. 1994Constructing a composite from weighted, smoothed rate-of-change windows
  20. 1994Constructing gold-mining rate-of-change tripwires for Treasury bonds
  21. 1994A capacity-stress checklist across commodities, bonds, and breadth
  22. 1994Rate of change parameters for testable entries
  23. 1994Constructing rate-of-change midpoints, lookbacks and divergence
  24. 1994Lead oscillator breaks need price trendline confirmation
  25. 1994Nested averages for an annual momentum curve
  26. 1994Evaluating a Coppock-style rate of change as a bottom-regime filter
  27. 1995A weighted eleven-month Dow rate of change as one testable timing procedure
  28. 1996Named lookbacks, thresholds, and streaks for entry rules
  29. 1997A midpoint rate-of-change test for bond trend follow-through
  30. 1997Constructing a short-rate-adjusted equity momentum filter
  31. 1998Daily momentum rank-churn as a portfolio-construction problem
  32. 1999Constructing a lagged rate of change cycle system
  33. 2000A triple delay line then a one-bar elliptic oscillator
  34. 2001Confirming rate of change divergences with price
  35. 2001Momentum trendline breaks need price confirmation
  36. 2001Market breadth, On-balance volume, and Rate of Change as a combined timing framework
  37. 2001Know Sure Thing with stacked horizons and trendline confirmation
  38. 2003Constructing a mechanical system from a rate of change condition
  39. 2003Constructing momentum from two closes and spotting divergence
  40. 2003Formula choice tilts which momentum mismatches count as divergences
  41. 2004RSI and momentum agreement as an asymmetric filter
  42. 2005Constructing price-normalized moving-slope hybrids
  43. 2005Unsigned speed gates on a fixed average-cross pair
  44. 2007Rebuilding rate of change as a path-weighted oscillator
  45. 2008Construct Special K so short-horizon signals stay inside the primary trend
  46. 2013Restore volume balance before adding another price-time indicator
By fieldIndicators and filters682 readingsBy year199756 readings
All 50 readings tagged Rate of Change
Also on Rate of Change5 readings
1985Constructing excess and momentum difference-curve oscillators1989Momentum overlays that speed moving-average oscillators1991Three-component trend model with rate-of-change filters1991Three-indicator market overview from tape, sentiment and rates1991Volume-scaled rate of change as a momentum construction