Risk-Adjusted Momentum with Drawdown Scaling and Adaptive Signals
Summary
The Risk-Adjusted Momentum Oscillator combines a selected price-momentum measure with drawdown-based risk adjustment. It offers rate of change, absolute price momentum, or log returns, then scales signals according to current drawdown relative to the maximum drawdown observed over a configurable lookback. A smoothed signal line and statistical normalization support crossover and threshold-based interpretation; thresholds can be fixed or adapted to volatility.
Optional leading components add momentum acceleration, a linear-regression projection, adaptive smoothing, and exhaustion detection. The indicator also includes entry, exit, trend-change, risk, and divergence alerts. These are design features described in the script, not demonstrated predictive results: the document supplies no backtest, comparison, or performance data. Drawdown scaling and projected values depend on lookback and smoothing choices, and alerts or oscillator crossings should not be treated as validated trading signals without independent testing.
Key ideas
- Momentum can be calculated from percentage change, absolute price differences, or logarithmic returns.
- The oscillator scales momentum using current drawdown relative to a lookback maximum drawdown.
- Optional components estimate momentum acceleration and project a linear-regression trend forward.
- Adaptive thresholds and smoothing respond to volatility conditions.
- The script describes alerts and signal logic but provides no evidence of profitability or predictive accuracy.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.