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1991issue C041-4

Volume-scaled rate of change as a momentum construction

A conventional momentum series is a difference of closes. An alternative multiplies each session's rate of change by that session's volume and applies a ten-session-average. The same series can be timed as an oscillator or compared with price through parallelism, convergence, and divergence.

  • Difference-momentum subtracts an earlier close from a later close over a chosen span. Product-momentum multiplies each session's rate of change by that session's volume and then applies a ten-session-average.
  • The product construction is intended to be multiplicative and to indicate whether the market has a tendency to continue its current direction.
  • The same series can be timed as a conventional oscillator or read as an intermediate-term leading indicator through parallelism, convergence, and divergence.
  • A momentum-strategy turns that series into one set of entry, exit, or stand-aside rules, including the case where the oscillator turns before the price move ends.
Entries in this reading3 entries
Current trackRate of Change50 readingsMomentum strategy103 readingsPrice-indicator divergence142 readings

Difference-momentum or product-momentum

A conventional momentum series, difference-momentum, is constructed as a difference between closes on two dates. That choice yields curves over spans from a few days to a few months.

An alternative construction, product-momentum, uses the session-to-session rate of change as the raw input: each session's price change is multiplied by that session's volume, and a ten-session-average is taken of those products.

The product construction is intended both to be multiplicative and to indicate whether the market has a tendency to continue its current direction.

Oscillator timing and the averaging window

The same constructed series is applied in two modes: as a conventional oscillator and as an intermediate-term leading indicator.

In historically strong advances and declines, the ten-session-average oscillator can turn before the price move ends. Lengthening the average is described as reducing that earliness while adding lag on weaker swings.

Parallelism, convergence, and divergence

Intermediate-term use compares the constructed series with the price path through parallelism, convergence, and divergence.

Parallelism, meaning parallel movement of the series and a major industrial average, was treated as buying-side confirmation of further advance. Early peaking and weakening against a still-rising market was treated as loss of continuation capacity.

Convergence is the case in which price and the constructed series draw toward each other, treated as fading capacity to continue the current path. Divergence is the repeatable condition in which price and the constructed series fail to confirm each other. It is used to form a reversal hypothesis rather than a standalone order.

Historical chart notes

A 1989 chart note states that the oscillator confirmed the industrial average's rally at marked areas 1 and 4, while divergence at areas 2 and 3 was used as a reversal warning.

A 1990 chart note states that the oscillator confirmed a February rally at area 5, and that divergences at areas 6, 7, 8, and 9 were used as indications of trend reversal.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
5 of 46 in the Rate of Change track
19911-4 pp.Next on Rate of ChangeThree-indicator market overview from tape, sentiment and ratesA reduced market-timing model can be assembled from three published series: a 30-week Value Line momentum reading, an advisor bulls-over-bulls-plus-bears ratio and a 26-week change in short-term government bonds.
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 year199198 readings
All 50 readings tagged Rate of Change
Also on Rate of Change5 readings
1994Constructing rate-of-change midpoints, lookbacks and divergence2001Confirming rate of change divergences with price2003Formula choice tilts which momentum mismatches count as divergences1985Constructing excess and momentum difference-curve oscillators1989Momentum overlays that speed moving-average oscillators