Combining Normalized Momentum with a Moving Average Trend Filter

Summary

This stock strategy combines a 20-day price momentum measure with a 20-day simple moving average. It scales the momentum value against its range over the previous 100 days, then signals long when the normalized value is above 0.5 and price is above the average, or short when both are below their respective thresholds. Entries are submitted beyond the current bar’s high or low by one minimum price increment.

The document explains how the two indicators are intended to confirm each other: momentum seeks recent acceleration, while the average indicates the broader direction. It provides rules and source code, but no performance results; the published backtest settings instead reference BTC/USDT futures over a limited period, despite the discussion describing stocks. Risks include conflicting signals, sensitivity to the chosen lookbacks, and stops that may not protect against price gaps. The text also suggests testing separate thresholds, adding volume or other indicator filters, and considering volatility-based stops.

Key ideas

• The strategy normalizes 20-day price change against its range over the prior 100 days.
• A long signal requires normalized momentum above 0.5 and price above its 20-day average.
• A short signal requires normalized momentum below 0.5 and price below its 20-day average.
• The document gives no results demonstrating that the entry rules are profitable.
• Fixed entry offsets may not contain losses when prices gap.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.