Which Trend is Your Friend?
The Classic 12-Month Simple Moving Average? No!
It would be more than shocking if exactly one year of equal-weighted returns turned out to be the optimum way to measure trends indicative of future performance. But it was simply an experimental choice made by an early academic momentum researcher later copied by others. That choice betrays that they had no knowledge of signal processing theory (that digs signals out of the noise and makes WIFI, digital TV, and remotely controlled rovers on Mars possible).
Can Shorter Trends Respond Faster and Better? No!
They can respond faster, but not better. Sharp drops often snap back, leaving nervous sellers with whipsaw losses when they buy back into the market at a higher price. The common wisdom of “buy the dips” suggests doing the opposite for just this reason. It takes time to safely confirm a trend. See Example Analysis Here
Are Optimum Trend Settings Stable Over Decades? No!
The trend character of the market sometimes changes in reaction to political, economic, and world events. Our Forward-Walk Progressive-Tuning technology automatically adapts the trend measurement settings in response to the market and character of the candidate funds. This Tuning Profile
for an ordinary SPDR sector rotation strategy ishows how it adapts.
See for Yourself Which Trend is Your Friend
The Market Heat Map page is designed so you can evaluate how each of five different measures of momentum performs in a simple month-end SPDR sector rotation strategy. Here is what to do:
1. Click one of the five choices in the Momentum box.
2. When you hover over the Risk and CAGR values just below, the corresponding strategy chart documenting your momentum selection’s performance appears.
3. Click the Risk or CAGR values to keep the chart up... until you click the chart to close it.
4. With the chart open, click each of the Momentum options to see how they each perform.