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2014issue C057-9

When ranging ends, replace the relative strength index, not its lookback

The archive uses the relative strength index to mark tops and bottoms while price is range-bound. After a change into trend, it replaces the oscillator family with a moving average rather than retuning nine-day, 14-day, or 20-day windows.

  • Range-bound conditions are the setting in which the relative strength index is used to locate tops and bottoms.
  • A change from a range-bound market into a trending market is treated as a reason to change indicator family, not only relative-strength-index length.
  • Nine-day, 14-day, and 20-day windows are lookback retunes that do not solve a regime change.
  • A moving average is proposed for locating tops and bottoms once the market is trending, because a previously used tool may no longer be the right one.
Entries in this reading3 entries
Current trackMarket regime classification91 readingsRelative Strength Index261 readingsMoving average597 readings

Treat a stalled oscillator as a regime question

Range-bound conditions are described as a setting in which the relative strength index can be used to locate tops and bottoms. In that setting the relative strength index is a bounded oscillator used to mark those tops and bottoms while price stays range-bound.

Editorial view: when a swing tool stops mapping turning points, treat the failure as a possible regime mismatch first. Ask whether the market has left a range before changing the oscillator window.

A lookback retune does not fix a regime change

A change from a range-bound market into a trending market is treated as a reason to change indicator family rather than only change relative-strength-index length. Nine-day, 14-day, and 20-day relative-strength-index windows are cited as the kind of lookback retunes that do not solve a regime change.

Market-regime classification, as used here, sorts conditions into range-bound versus trending so the indicator family can change with the tape.

A moving average is proposed as the alternative for locating tops and bottoms once the market is trending. The moving average is a trend-following smoother offered as the replacement tool once price leaves a range.

Indicators are said to need adjustment because a previously used tool may no longer be the right one after conditions change.

A fixed rule still leaves a regime choice

A static, all-weather, rule-only approach is framed as an attempt to remove judgment about future price or implied volatility. A static all-weather rule, in this wording, is a fixed algorithmic stance meant to work in every condition without judging the current regime.

A recognized setup is described as able to stop working after participants grow confident and increase size, which is tied to a shift in the governing cycle or regime.

Editorial view: that cycle or regime shift is the same kind of break that can make an oscillator the wrong map for turning points, which is why the archive changes tool family instead of only retuning length.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
15 of 21 in the Market regime classification track
201621-22 pp.Next on Market regime classificationA Treasury-high-yield ratio as an equity regime filterThe Treasury-high-yield ratio divides an intermediate-term Treasury bond fund by a high-yield corporate bond fund and stands in for the junk-versus-government credit spread.
All readings on this track · 21 readings
  1. 1991A commodity-bond regime check before an equity relative strength index
  2. 1993A case study in refusing an isolated entry
  3. 1994The late-bull intermarket clock and regression-channel gates
  4. 1995Seasonal and political cycle maps as tested abstention regimes
  5. 2001Year-end high and low as a four-state regime filter
  6. 2002A six-market moving-average regime map from 2002
  7. 2003Gold as a regime marker after equity leadership fades
  8. 2003A four-season regime map before the shorter chart
  9. 2003From downtrend to trading range: implied volatility and volume after a shock fades
  10. 2006Exit discipline after regime shocks
  11. 2006Liquidity, growth, and midcycle market regimes
  12. 2006Yield-curve spread as an equity regime filter
  13. 2008Commodity, credit and bond alignment is not a forecast
  14. 2013Two lookback windows locate the cycle across bonds, stocks, and commodities
  15. 2014When ranging ends, replace the relative strength index, not its lookback
  16. 2016A Treasury-high-yield ratio as an equity regime filter
  17. 2016One-off shocks versus seasonal and secular regimes
  18. 2018Yield-curve flattening as missing market-regime context
  19. 2019Classifying six market phases around a single trade
  20. 2020Evaluating a two-window seasonal equity-bond switch
  21. 2020Dating energy regime breaks before the trade
By fieldIndicators and filters874 readingsBy year2014163 readings
All 91 readings tagged Market regime classification
Also on Market regime classification5 readings
1991A commodity-bond regime check before an equity relative strength index2013Two lookback windows locate the cycle across bonds, stocks, and commodities2015Rule-based ETF rotation as one testable procedure1992A seven-vote sentiment score for fund-sleeve regimes1998A weekly composite-score that classifies despair, euphoria, or neither