Evaluating the weekly four-percent close filter as a market-state procedure

What the weekly switch classifies

The subject rule is presented as an always-in-the-market trend-filter applied to weekly closes. It is a weekly-percent-change-switch: a long signal fires when the latest weekly close is at least four percent above the prior weekly close, and a sell or reverse signal fires when the latest weekly close is at least four percent below.

A trend-filter classifies ordered price observations into an up or down regime over a stated sampling interval and lookback. Here the sampling interval is the weekly close, and the lookback is the prior weekly close.

Freeze the free choices

Editorial: the switch is not yet a complete mechanical-trading-system until every free choice is frozen. Freeze the four percent threshold, the weekly sampling interval, long-only-mode or long-and-short-mode, and a fixed-share-unit that trades the same share count on every signal.

A mechanical-trading-system is a fully specified procedure that turns rule inputs, market state, and execution constraints into entry, exit, or abstention signals. After those items are fixed, the resulting stance can be tested as one procedure.

Two ways to handle a sell

The same mechanical-trading-system can be run in long-only-mode by moving to cash on a sell, or in long-and-short-mode by reversing on each opposite weekly signal. Long-only-mode exits to cash instead of opening a short position. Long-and-short-mode stays in the market by reversing from long to short, or short to long, at each opposite signal.

Study cuts and listed vehicles

The post-2000 Nasdaq 100 test used a fixed 100-share unit and required 20000 in cash or cash-plus-margin purchasing power at the 2000 start. That fixed-share-unit does not resize with price or equity.

Each annual study uses an annual-reset. It starts at that year’s first buy or sell signal and omits prior-year balances, except for a separate three-year cumulative series.

The 1985 to 2000 extension applied the same filter to the S&P 500, the Dow Jones Industrial Average, and the Nasdaq, rather than to the earlier Value Line composite window. After 2000 the filter is concentrated on the Nasdaq 100 tracker because that index offered listed vehicles including the fund, options on the fund, and e-mini futures.

The 2002 Nasdaq 100 path is reported only through 30 August. That year is described as having produced slightly more than half as many trades as each of the prior two years.

A market-state overlay beside a moving-average

The archive write-up treats the filter more as a market-state read across the Nasdaq 100, the S&P 500, and the Dow industrials, to be combined with companion models such as moving averages, than as a self-contained mechanical strategy.

A moving-average is a smoothing of ordered price observations over a defined lookback, used here as a companion baseline rather than as the primary switch. Editorial: keep the moving-average in that companion role and keep the weekly filter as a market-state overlay.