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1999issue C081-6

Treat RSI and momentum as three mechanical procedures

A 14-bar relative strength index, a 14-bar zero-line momentum series, and a two-indicator combination can be written as three mechanical procedures. Editorial reading: judge them only by how the same lookback, next-open fill, and sample window change the evaluation.

  • A 14-bar close-to-close momentum series is the current close minus the close 14 bars earlier, so equal closes map to zero, a higher current close is positive, and a lower current close is negative.
  • The matching 14-bar relative strength index is built from average up closes versus average down closes, equals 50 when those averages match, and is theoretically bounded between 0 and 100.
  • Isolated momentum, isolated RSI, and a combined agreement rule share daily bars of the same five names, a 14-day lookback, next-open fills, and no stops, profit protection, slippage, or commissions.
  • A later sample window produced a different ranking among those three procedures and a points-only buy-and-hold path, so sample timing is part of the evaluation.
Entries in this reading3 entries
Current trackMomentum strategy103 readingsMechanical trading system158 readingsRelative Strength Index186 readings

Three procedures, one evaluation frame

Relative strength index is a bounded oscillator that compares average up closes with average down closes over a chosen lookback and centers on 50, with 70 and 30 used as overbought and oversold exits. A momentum strategy is a signed close-to-close difference over a lookback that flips long above zero and short below zero. A mechanical trading system is a fully specified entry, exit, and abstention procedure that can be backtested on the same bars, lookback, and execution lag.

Editorial reading: treat the isolated RSI rule, the isolated zero-line momentum rule, and the two-indicator combination as three mechanical procedures. Judge them only by how the same lookback, execution lag, and sample window change the evaluation, not by which series looks more complete on its own.

How the two series are defined

A 14-bar close-to-close momentum series is defined as the current close minus the close 14 bars earlier. Equal closes map to zero, a higher current close is positive, and a lower current close is negative.

The same 14-bar relative strength index is defined from average up closes versus average down closes. It equals 50 when those averages match and is theoretically bounded between 0 and 100.

Coca-Cola 14-day RSI against the 70, 50 and 30 lines

Traders should notice how often 14-day RSI on Coca-Cola sits between 50 and 70, then breaks 70 before the spring 1999 peak and later slumps through 50. Those are the same decision lines the long/short rules use. The path was read from the published daily pane: month labels fix the dates and the right-hand scale fixes the index.
Traders should notice how often 14-day RSI on Coca-Cola sits between 50 and 70, then breaks 70 before the spring 1999 peak and later slumps through 50. Those are the same decision lines the long/short rules use. The path was read from the published daily pane: month labels fix the dates and the right-hand scale fixes the index.Coca-Cola (KO) · 1 day · 1998-10-01T00:00:00.000Z to 1999-05-25T00:00:00.000Z

Wilder 14-session RSI on daily bars; the pane’s last printed reading is 42.857. Turning points are approximate to a few index units because they were taken from the raster, not from a table.

Isolated rules and the combined procedure

The isolated momentum procedure enters long when the 14-bar series crosses above zero and enters short when it crosses below zero.

The isolated RSI procedure uses the 50 line for both entry and exit while using 70 and 30 only as exits. The illustrated version assumes no stop-loss.

The combined procedure requires both the 14-bar RSI and the 14-bar momentum series to agree before a new long or short is opened. An exit fires when either indicator reaches an exit level.

Shared bars, lookback, and fills

All three mechanical procedures were specified on daily bars of the same five names, with a 14-day lookback, fills at the next open after a signal, both long and short allowed, and no stops, profit protection, slippage, or commissions.

The source compared those three procedures with a points-only buy-and-hold path over a window starting 9 December 1994 and ending 18 May 1999, so the first eligible fill is the open on 3 January 1995.

A later window changes the ranking

A later start on 2 January 1998 through 18 May 1999 produced a different ranking among the same four procedures. The source used that contrast to show that sample timing changes the evaluation.

Editorial reading: once the three rules and the buy-and-hold path share bars, lookback, and next-open fills, the remaining evaluation question is how the sample window rearranges the ranking.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
27 of 51 in the Momentum strategy track
20001-4 pp.Next on Momentum strategyThrust strength figure from moving-average swingsFixed-period momentum is the latest close minus the close a fixed number of sessions earlier, so a new move shorter than that window still includes earlier price change.
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 year199959 readings
All 103 readings tagged Momentum strategy
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