- A = Average_Price(Days) - Average_Price(Weeks)
- B = A/ Last_Price
- C = Percent_Rank(B, Years)
Naturally, much smoother indicators and methods exist, but I am choosing this as a starting point because it appears so linear in its own right from the 20,000-foot level -- It's that close up turbulence that will be the focus of future articles in this series, particularly when we see what happens when these returns are compounded.
The hypothetical additive, frictionless return series shown below uses the SPY back through April 1993, and excludes returns on cash. I highly doubt the proscribed indicator would have performed as well on other indexes, but that isn't the point of this piece. Also, as a preemptive strike -- with respect -- please don't write asking for the specific parameters. Everything needed to replicate this very simple model is found above, and I have increasingly come to the conclusion that one cannot "own" an indicator without conducting individual research.