Skip to main content
Track Momentum strategy
41 / 51
Search the archiveLibrary
Library

2017issue C0724-26

Opposite rules for index price and volatility momentum

Editorial reading: treat a price index and its volatility as two linked markets that may need opposite entry, exit, and abstention rules. The archive pairing is a short-cycle procedure on the equity index and a high-momentum procedure on the related volatility series, tested as one short-horizon procedure.

  • A short-horizon momentum procedure can buy overbought sequences and sell oversold sequences rather than fading those states.
  • The same market can be studied from two linked angles by pairing a short-cycle procedure on the equity index with a high-momentum procedure on the related volatility series.
  • Sequence-of-runs, a count of consecutive up or down days, is the shared market-state input that can trigger both rule sets.
  • Opposite day-count and run-length profiles are used to justify opposite-strategies instead of applying one rule set to both series.
Entries in this reading1 entry
Current trackMomentum strategy103 readings

Linked price and volatility markets

A short-horizon momentum procedure can be specified as buying overbought sequences and selling oversold sequences rather than fading those states. In this archive pairing, that high-momentum stance is applied to the related volatility series.

The same market can be studied from two linked angles, price movement and volatility, by pairing a mean-reversion procedure on the equity index with a high-momentum procedure on the related volatility series.

Editorial reading: treat the price index and its volatility as two linked markets that may need opposite entry, exit, and abstention rules, then test that pairing as one short-horizon procedure.

Opposite day counts and move sizes

From August 1998 through February 2017, daily up-day counts, down-day counts, and average up and down move sizes for SPY and VIX ran in opposite directions.

SPY showed more up days than down days and larger average down days than up days, while VIX showed more down days than up days and larger average up days than down days.

Opposite up- and down-day counts in SPY and VIX

Figure 1 in the source table counts sessions from August 1998 through February 2017: SPY printed 3193 up days against 2769 down days, while VIX printed the reverse tilt at 2147 up and 2452 down. A short-horizon trader should not copy one entry rule onto both series, because the index drifts higher more often and the volatility index prints more down sessions.
Figure 1 in the source table counts sessions from August 1998 through February 2017: SPY printed 3193 up days against 2769 down days, while VIX printed the reverse tilt at 2147 up and 2452 down. A short-horizon trader should not copy one entry rule onto both series, because the index drifts higher more often and the volatility index prints more down sessions.SPY and VIX · August 1998 through February 2017 · 1998-08-01T00:00:00.000Z to 2017-02-28T00:00:00.000Z

The same table also lists average daily move sizes (SPY +0.92/−0.99, VIX +1.11/−0.99). Those percent-scale figures are omitted here so the y-axis stays in units of days. Counts use SPY and the VIX index, not UVXY.

Sequence-of-runs as the shared trigger

Sequences of consecutive up and down days can serve as the pattern input that triggers both the equity mean-reversion rules and the volatility momentum rules. Sequence-of-runs is that count of consecutive up or down days, used as the market-state input that triggers entry, exit, or abstention.

SPY run charts showed longer upside sequences, including runs of 12 and 14 days, while VIX run charts showed longer downside sequences, including runs of 10 days.

Compared with random sequences, both SPY and VIX had fewer one- and two-day runs and longer tails of extended runs, with VIX biased in the opposite direction from SPY.

How the short-cycle equity rule is written

The equity short-cycle procedure can enter after a multi-day run, for example buying the close of a third down day and exiting on the close of the second day after entry, with long-side thresholds and holding windows lengthened relative to shorts.

Short-cycle here means a mean-reversion procedure that waits for a run of consecutive down or up days, then fades that run after a delayed entry and a short, pre-set holding window. High-momentum means the matching volatility rule set that buys already-stretched upside sequences and sells already-stretched downside sequences instead of fading them.

Editorial reading: keep the two rule sets in one procedure so the entry, exit, and abstention choices stay testable together across the linked series.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
41 of 51 in the Momentum strategy track
201824-25 pp.Next on Momentum strategyA three-state overlay that colors a trend only after the line clears the barA momentum overlay can be built from a simple, exponential, double, or Hull average. The worked example uses a 21-bar exponential average.
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 fieldTrend and mean reversion93 readingsBy year2017100 readings
All 103 readings tagged Momentum strategy
Also on Momentum strategy5 readings
1984Half-cycle differencing for momentum signals1985Constructing excess and momentum difference-curve oscillators1987Relative strength evaluation under competing optimization criteria1988A two-rule classroom book of cheapness and new highs1988Weekly MACD as a two-clock momentum confirmation stack