Index Timing with Relative Strength and Directional Volatility Differences

Summary

This index-timing method combines relative price strength (RPS) with the difference between upward and downward volatility. It computes the two directional volatility measures for each index, subtracts one from the other, and smooths the result with a moving average. The averaging window depends on the RPS reading, with stronger relative strength corresponding to a longer window. The previous day’s smoothed signal determines whether to hold or enter exposure when positive, or remain out or sell when it is not.

The note reports historical signal states through April 3, 2020: the CSI 300 had turned bearish during that week, the SSE 50 remained bullish after turning bullish on March 25, and the ChiNext and small-cap indices remained bearish. These are dated observations rather than a performance evaluation. The linked report is not reproduced, so the source provides no precise volatility definitions, parameter values, transaction assumptions, risk controls, or backtest statistics. Results therefore cannot establish how the approach would perform in other periods or under implementation costs.

Key ideas

• The method combines relative price strength with the difference between upward and downward volatility.
• A moving average smooths the volatility difference, and its window grows with the RPS value.
• The previous day’s smoothed signal determines whether the strategy holds exposure or stays out.
• The note lists dated signals for several Chinese indices but does not provide performance statistics.
• The underlying report is unavailable in the text, leaving parameter and implementation details unspecified.

Tags

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