Long-Horizon Momentum Regimes for US Equity Index Trading

Summary

This strategy uses the sign of a benchmark’s long-window log return to set a directional regime for a US equity index instrument. With the default eighteen-month lookback, positive momentum calls for a long position; negative momentum either leaves the strategy flat or opens a short if shorting is enabled. It checks for a change in the desired direction at confirmed bar closes and plots the momentum measure around a zero line.

Position sizing defaults to unit leverage. The code includes optional volatility targeting based on the annualized standard deviation of daily log returns, but that feature is disabled in the published defaults. The accompanying notes suggest use with liquid US index ETFs or futures and describe SPY as the example benchmark. They identify possible whipsaws near zero, delayed responses to sharp reversals, sensitivity to the lookback, and limited regime observations. No performance results are provided, so the method requires careful testing with realistic costs and data assumptions.

Key ideas

• The sign of the benchmark’s eighteen-month log return determines the strategy’s market regime.
• Positive momentum produces a long stance, while negative momentum produces either a flat or short stance depending on the short setting.
• Volatility targeting can scale exposure, but it is switched off in the defaults described.
• The notes caution that long lookbacks can react slowly and may whipsaw when momentum stays near zero.
• The document explains the rule and its risks but provides no measured performance results.

Tags

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