Volatility-targeted momentum
Scales a simple momentum signal so higher-volatility pairs do not dominate risk.
Keep the chart simple
What needs to be in place first
- Lookback and rebalance schedule are fixed
- Volatility estimate uses only available data
- Currency and gross exposure caps are active
See volatility-targeted momentum from both sides
Choose a direction and follow the chart from setup to entry, stop and planned exit. The method stays the same; only the directional comparisons reverse.
Entry is above the trigger, invalidation is below the setup and a profit exit is above the entry.
- EEntryLONG ENTRY / MONDAY REBALANCE
- SStop / risk limitLONG RISK LIMIT / 3σ LOSS
- XExitREBALANCE / EXIT
This is one pair inside a cross-sectional portfolio, not a standalone chart entry. Friday's 12–1 rank, absolute 2% threshold, 60-day volatility and currency-factor caps determine the Monday long target weight; a 3σ one-day loss is a risk cut, while the next weekly rebalance is the planned exit or resize.
A rising chart alone cannot create this long. The pair must rank in the cross-sectional top two and the complete portfolio must pass every exposure cap.Check the market first
At least 273 completed daily closes and 60 valid returns exist for every pair in the comparison universe.
Wait for the entry rule
At Monday 00:00 UTC, rebalance selected pairs to inverse-60-day-volatility weights, normalised to 10% ex-ante portfolio volatility and then reduced proportionally to satisfy every cap.
Place the stop before entry
No chart stop. Cut a pair to zero at the next daily open if its one-day loss exceeds 3 × its 60-day daily volatility; suspend all new entries for one week if estimated portfolio volatility exceeds 15%.
Know how the trade ends
At each weekly rebalance, exit a pair that leaves its top/bottom-two rank, loses the 2% absolute-score threshold or breaches a risk rule; otherwise resize to the new capped target weight.
Worked example: weekly 12–1 momentum with inverse-volatility weights
This version of Volatility-targeted momentum chooses one answer for every decision so you can repeat it. Treat the settings as a starting point to test, not as proven or recommended parameters.
EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/JPY, USD/CAD and USD/CHF daily UTC closes.
Cross-sectional weekly research: rank pairs each Friday using only completed daily history and rebalance Monday 00:00 UTC.
Long and short positions are equal in count; gross leverage is capped at 1.0 and this is not a recommendation to use leverage.
Momentum score is Friday close divided by the close 252 trading days earlier minus one, excluding the most recent 21 trading days by using the close from 21 days ago as the numerator.
Volatility is the standard deviation of the latest 60 completed daily log returns, annualised by square root of 252.
Convert each pair's sign to a USD factor sign so portfolio net USD exposure can be calculated consistently.
Give every tool one job
Direction, timing, volatility and risk are different questions. This stack assigns them rather than asking one indicator to do everything.
Ranks cross-pair directional momentum while excluding the latest month.
Scales positions so a high-volatility pair does not automatically dominate estimated risk.
Constrains hidden duplication across different pair symbols.
Charges each rebalance rather than evaluating frictionless ranks.
- At least 273 completed daily closes and 60 valid returns exist for every pair in the comparison universe.
- Rank scores each Friday; long the two highest and short the two lowest only when their absolute score is at least 2%.
- No currency's summed absolute weight exceeds 40%, gross leverage is at or below 1.0 and net USD factor exposure is within ±20%.
At Monday 00:00 UTC, rebalance selected pairs to inverse-60-day-volatility weights, normalised to 10% ex-ante portfolio volatility and then reduced proportionally to satisfy every cap.
No chart stop. Cut a pair to zero at the next daily open if its one-day loss exceeds 3 × its 60-day daily volatility; suspend all new entries for one week if estimated portfolio volatility exceeds 15%.
At each weekly rebalance, exit a pair that leaves its top/bottom-two rank, loses the 2% absolute-score threshold or breaches a risk rule; otherwise resize to the new capped target weight.
Cancel the entire rebalance when any universe member lacks required data, Monday gap exceeds 3 daily standard deviations, covariance calculation fails, or capped weights cannot meet the USD limit.
Deduct 1.5 pips plus 0.3-pip adverse slippage for each unit of pair turnover and 0.5 pip per daily rollover; use archived broker values instead when available.
Move through the chart one decision at a time
- Friday: freeze data
Archive all seven pair closes, 252/21-day momentum inputs and 60 daily returns before calculating ranks.
- Friday: rank
Pairs A and B have the highest eligible scores; C and D have the lowest. Every selected absolute score exceeds 2%.
- Friday: scale
Compute inverse-volatility raw weights, normalise to the 10% target and reduce any weights needed to respect gross, currency and USD caps.
- Monday: gap check
Compare each open with Friday close in units of its 60-day daily standard deviation; cancel all if any selected pair exceeds three.
- Monday: rebalance
Trade only the difference from current to target weights and charge the frozen spread, slippage and turnover costs.
- Daily and next Friday
Apply the 3σ pair-loss and 15% portfolio-volatility rules daily, then rerank on Friday without using later data.
A rejected example
Reject an apparently attractive set of four ranks when three positions all express short USD and the ±20% USD factor cap cannot be met. Symbol diversification is not currency diversification.
Common variations
- Separate variant only: time-series momentum where each pair is compared with its own past return.
- Separate variant only: six-month formation period.
- Separate variant only: monthly rebalancing and a different cost model.
Rebuild this method on the platform you use
The written rules work independently of the charting app. Match the same feed, timeframe, indicator settings and completed-candle timing before comparing results.
MT4
Manual rulesThe rules can be followed manually, but one or more requested chart tools need custom code on this platform.
MT5
Manual rulesThe rules can be followed manually, but one or more requested chart tools need custom code on this platform.
TradingView
Manual rulesThe written rules can be followed manually. WickAtlas does not currently provide an automated strategy or trading bot.
TradingView indicatorsWickAtlas TradingView guideTest on a demo account first. Platform access does not validate a strategy or make a result likely. Compare the platforms.
Keep every test organised.
The CSV gives you one place to record the setup, costs, execution, outcome and whether you followed your rules.
Download test-plan CSV ↓