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Time-Series Momentumsign of the 12-month own return

Evidence: StrongIntermediateTrend Following · Statistical

Each instrument's own past twelve-month return predicts its future return. A positive sign means long, negative means short, with the position sized by inverse volatility.

This is not a chart pattern — it is a documented asset-pricing anomaly. You read a number, not a shape.

It is the only strategy in this set with strong evidence behind it, and it is not worth running on a single pair.

Category
Trend Following · Statistical
Timeframe
D1 data · MONTHLY rebalance
Suitable pairs
A basket of at least six to eight: EURUSD, USDJPY, GBPUSD, AUDUSD, NZDUSD, USDCAD, USDCHF
Session
Session is irrelevant — the signal comes at the month close
Indicators / tools
Twelve-month return · 60-day realised volatility · swap and carry data. No chart indicators.

Valid setup

S03 · TIME-SERIES MOMENTUM — SIGN OF THE 12-MONTH RETURN USDJPY · MONTHLY candles · this is a rules signal, not a chart pattern — you read a number, not a shape LONG 123.44 129.74 136.03 142.32 148.61 154.90 161.20 12-MONTH LOOK-BACK WINDOW price 12 months ago price now → R12 = +8.8% ENTRY = next month open 1 2 3 4 ① Window opens 12 months back ② Month closes → compute R12 = C[t]/C[t−12] − 1 ③ R12 > 0 → hold LONG for the next month ④ Re-check at each month close, never in between Position size = target vol ÷ realised vol, so every pair contributes equal risk. Needs 6–8 pairs — on one pair this is statistically meaningless. 144.03 143.24 131.66 t−12 t = signal month close 12-month return R12 (%) — THIS is the signal; the sign is all that matters 0 % R12

Exact rules

Entry

  • At each month's close: R12 = (close now ÷ close twelve months ago) − 1.
  • R12 above zero means long, below zero means short. No threshold — just the sign.
  • Position size = (target volatility ÷ 60-day realised volatility) × base unit, so every pair contributes the same risk.
  • Rebalance monthly. Ignore a signal that changes mid-month.
  • Use carry-adjusted returns, with swap included. Carry is material in FX and leaving it out distorts the result.

Stop loss

  • A per-trade hard stop works against the design — this is a portfolio strategy, not a trade setup.
  • Portfolio-level control: if one position's drawdown exceeds three times its target monthly volatility, halve the size.
  • Optional catastrophic stop at 4 × ATR(20) on D1. Measure its impact separately — adding a stop materially changes the historical statistics.

Take profit / exit

  • No take profit. The return comes from the duration of the trend, not from a target.
  • Exit only when the sign flips at the next rebalance, or when the volatility target rescales the position.

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Trading carries risk and most retail accounts lose money. Nothing on this page is financial advice or a recommendation to trade. The chart is an illustration of the rules on constructed candles — it is not a record of a trade and not a backtest.