ETF Selection with Relative Strength, Momentum, and Correlation Filters

Summary

This document describes a short-term ETF strategy intended to seek buy-and-hold-like returns with less downside risk. It ranks opportunities using RSMK, a smoothed percentage change in the logarithm of an ETF’s price relative to a benchmark, and combines that measure with RSI, moving averages, volume, and correlation to SPY. Entries require strong and rising relative strength, evidence of a recent oversold pullback, a short-term trend confirmation, adequate volume, and a market-risk condition matched to the ETF’s correlation. Exits follow relative-strength deterioration, a fixed holding period, or a profit target.

The accompanying indicator is designed to scan a broad ETF watchlist and display entry, exit, and position-performance information. The description gives the rules and default settings but no backtest results or evidence of realized performance. The method was designed for non-leveraged ETFs, and its results may depend on the ETF universe, benchmark, thresholds, and market regime. The script’s benchmark can be changed on a chart, while the screener uses SPY.

Key ideas

• RSMK measures smoothed relative price change using the logarithm of an ETF-to-benchmark ratio.
• Entries combine relative strength, RSI pullback and recovery, short-term trend, volume, and correlation filters.
• Exits are triggered by relative-strength deterioration, a time limit, or a profit target.
• The indicator is intended to scan a diversified ETF watchlist rather than analyze a single instrument.
• The methodology is intended for non-leveraged ETFs, and the document reports no performance test results.

Tags

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