What it measures
Momentum is how much price has changed over the last n bars; rate of change is the same change expressed as a percentage of the starting price. Nothing is averaged or bounded, so they are the rawest measures of speed a chart offers, and they are the core of most "momentum" strategies in the academic sense.
The calculation
momentum = close − close n bars ago rate of change = (close − close n bars ago) / close n bars ago × 100
Rate of change is comparable across assets at different prices; raw momentum is not.
Inputs and defaults
- Length: 10 for the Pine built-ins; 12 and 25 in older texts. Trend followers use long lookbacks (60 to 250 bars) and trade the sign.
How it is read
Above zero price is higher than it was n bars ago; below zero, lower. The sign is a trend definition and the slope is acceleration. Long-lookback rate of change is the classic time-series momentum rule: hold when positive, stand aside or short when negative.
Where it fails
It is unsmoothed, so a single large bar entering or leaving the window swings it, and it is unbounded, so there are no natural thresholds. The lookback is the whole rule: short lookbacks whipsaw, long lookbacks give back a lot of each turn. Time-series momentum rules also hold through the start of every drawdown by construction.
How the desk reads it
Several of the screened strategies wrap a rate of change in bands or an average, which is a reversion rule on a momentum series, and the desk reads those on what they did in the trending year. A bare time-series momentum rule is read on its lookback and on how much of each turn it gives back.
In the desk's screen
Of the 614 screened strategies in the library, 17 (2.8%) use this indicator somewhere in their logic.
8 of those were gross-profitable on enough cells to reach the after-fee replay.
- Adaptive Multi-Factor Swing Strategy Joining a move · after-fee replay
- Adaptive Multi-Factor Swing Strategy V22 - Position Direction Guard Joining a move · after-fee replay
- Crownmark Allocation Engine [JOAT] Trading activity · after-fee replay
- KST Strategy [Skyrexio] Breakout · after-fee replay
- Prod_1st_NQ15HMADY Joining a move · after-fee replay
- Range Filter Pro V4 Time of day · after-fee replay
- Regime Execution Strategy [JOAT] Breakout · after-fee replay
- RORO System Oscillator Joining a move · after-fee replay
- Alpha TRIX Strategy Breakout
- Aureate Market Architecture Strategy [JOAT] Chart turning points
- Charter Execution Model [JOAT] A gauge with a line
- Divergence Strategy [Trendoscope®] Joining a move
The count is read from the compiled code of each strategy in the library; a strategy that computes the indicator by hand under another name is not counted. The desk's own rules are not part of the count.