Average momentum

Also seen as: "Average Momentum" (the label on the ranking-metric selector), momentum, trend strength.

Where does average momentum appear in Fincanva?

Average momentum appears on two different controls, and does the same job on both.

The other Indicator options on a risk condition are "Raw price", Simple moving average, and Percent change.

How is average momentum calculated?

Average momentum is the plain average of four percent-change readings taken over four fixed spans — 1 month, 3 months, 6 months and 12 months — so one number carries the short-term and the year-long trend at the same time.

where: $c_N$ is the percent change of the instrument's adjusted closing price over the last $N$ months — its latest adjusted close measured against its adjusted close $N$ months earlier, expressed in percent. Adjusted means the price series is already corrected for dividends and splits, so a payout or a share split does not read as a price move. All four spans carry the same weight, which is what the "average" in the name refers to: no single horizon can dominate the reading.

In words: measure how far the price has moved over the past month, the past three months, the past six months and the past year, then take the average of those four percentages. That is also why average momentum asks for no Period — the four spans are fixed, not chosen by you — and why it is smoother than a single percent change: three of the four spans are long, so one sharp month moves the average by only a quarter of its own size.

Why does an instrument have no momentum reading at first?

Because one of the four spans reaches back further than its history goes. If any one of the 1-, 3-, 6- or 12-month readings cannot be computed, that day is skipped entirely — average momentum produces no value rather than averaging the three spans that do exist. In practice that means the first year: nothing is ranked or compared on average momentum until the instrument has a full 12 months of prices behind it, because the 12-month span is the last of the four to become available.

Once the history is long enough, a missing day inside it does not skip anything — a span that lands on a date with no bar reads the most recent bar before it, so holidays and suspensions are covered rather than blanking the reading.

How do you read a high or low average momentum?

A higher average momentum reading means a stronger recent uptrend in the series, and a lower one means a weaker trend or an outright downtrend. The reading is signed, so it can sit above or below zero: a positive number describes a series that is above where it stood across the four spans on average, a negative number one that is below, and a reading near zero a series with no clear direction either way. Fincanva's own preset copy reads it that way — the shipped TIPS risk template flips a strategy to Risk-Off "Risk-Off when momentum turns sharply negative", and the Ranking-Based hint ranks the highest readings first.

Because three of the four spans are long, average momentum reacts to a turn later than a raw price move does. That is the usual trade-off of any smoothed trend measure: fewer reactions to one-off moves, and a later reaction to a real turn.

This page describes how a reading is interpreted, not what to do about it — Fincanva does not give investment advice. See Is this financial advice?.

Worked example

An instrument closes today at 110 (adjusted). A month ago it closed at 105, three months ago at 100, six months ago at 95 and twelve months ago at 88. The four percent changes are +4.76%, +10.00%, +15.79% and +25.00%, so average momentum is (4.76 + 10.00 + 15.79 + 25.00) ÷ 4 = +13.89%.

Now suppose the last month reversed hard and today's close is 96 instead. The four readings become −8.57%, −4.00%, +1.05% and +9.09%, and average momentum is −0.61% — barely negative, even though the instrument now sits 8.6% below where it stood a month ago, because two of the longer spans are still positive and each span carries a quarter of the weight. That damping is the point of averaging four horizons, and it is why the reading turns later than the price does.

Defaults in Fincanva

• Average momentum takes no window input. When you pick it as a risk condition's Indicator, the Period field that Simple moving average and Percent change require is not shown, and any value already entered is cleared — the indicator carries its own four fixed spans rather than one you choose.
• As a risk-condition indicator it only transforms the series being watched; the switch between the Risk-On and Risk-Off allocation is decided by that condition's thresholds.
• As a Ranking-Based metric it decides the ranking order only. How many instruments that ranking ends up holding is capped separately by max positions.