How a signed comparative-strength oscillator is built for rank rotation

Why a raw price ratio is hard to rank

A conventional comparative-relative-strength reading is a price ratio of one security to another, usually a stock over a broad index. That raw ratio has no shared neutral level across names, so one chart cannot be lined up with another on a common long-or-short scale.

The same ratio construction can be applied to an intermarket pair, such as stocks versus bonds or gold versus a dollar index. In that use the ratio describes a cross-market regime rather than only a stock-versus-index spread.

How the signed oscillator is built

RSMK is a lookback-based comparative-strength oscillator. It recenters the log price ratio over a finite window, then smooths the change so the sign of the reading is a shared long-or-short-of-the-benchmark state.

The oscillator is computed as a short exponential average of the lookback-change in the log price ratio, then scaled. The value reflects a finite window rather than only the latest print.

Zero-line-state is the construction rule that a positive oscillator reading means the security is beating the comparison series and a negative reading means it is lagging, independent of the raw price level of either series. A reading above zero means the security is outperforming the comparison series. A reading below zero means it is underperforming. That sign holds for any price level.

What the signed reading is meant to correct

That signed construction is intended to remove several ratio-chart defects: lag, inability to rank names on one scale, screen-size-dependent visuals, subjectivity, and the lack of buy or sell reference levels for a system.

A testable long rule and an earlier exit

A testable long rule is a cross of the oscillator up through zero. An optional peak-retreat-exit closes the long when the reading has fallen a stated number of points from its recent peak, because zero-line sell turns can lag sharp corrections.

From one reading to a rank-rotation book

Rank rotation is a portfolio procedure that scores many names on the same signed comparative-strength reading, then admits, holds, and later replaces positions according to that ranking and a fixed holding window.

A rank-rotation procedure using that zero-line entry, a fixed holding window, a name cap, next-open execution, and a parameter-selection window was specified for a historical comparison against both a passive book and a moving-average rule on the unsigned ratio.

Prior relative-strength ranking studies treated intermediate-term leaders as more likely to keep leading over a subsequent window, and treated grouped sorts of intermediate and longer-term appreciation as a long-sample ranking design.