How is momentum actually measured?
Momentum in these strategies means something specific and mechanical: a number computed from an asset's own recent returns, used to rank it against other assets or to test it against cash. Different strategy families use different formulas, and the differences are deliberate.
The DMS weighted average
The formula used by Global Navigator, LT Gain, Smart Leverage, and the site-wide Risk On / Risk Off indicator is:
wa = 0.25 x (1-month return) + 0.25 x (3-month return) + 0.50 x (6-month return)
Each component is the cumulative return over that trailing window, through the end of the most recently completed month. Half the total weight sits on the 6-month leg.
Why six months carries half the weight
The instinct is usually the opposite. Recent data feels more relevant, so weighting the most recent month heavily seems more responsive and therefore more protective.
We tested exactly that. Reversing the emphasis to put half the weight on the 1-month leg was run across the full history of the Global Navigator family. It was worse. The reason is instructive: a signal dominated by the most recent month is easily flipped by a single counter-trend bounce, and counter-trend bounces are a defining feature of the exact market episodes a defensive rule exists to catch. In both October 1987 and the 1994 bond selloff, a one-month rebound would have vetoed a defensive move that the slower weighting correctly took.
The current weighting also sits on a wide plateau. Varying the 1-month weight anywhere from zero to 0.40 produces identical results, which is the signature of a robust setting rather than a tuned one. A parameter that only works at one precise value is usually fitted to history rather than measuring anything real.
Other formulas in use
Not every strategy on the site uses the DMS weighted average. The third-party strategies published here use the formulas their original authors specified, because reproducing someone else's strategy means reproducing their rules, not substituting ours.
- The unweighted 1/3/6/12 average, sometimes written 13612U, is a plain average of the trailing 1, 3, 6, and 12-month returns. Used by the Keller and Keuning family and by generalized protective momentum approaches.
- The weighted 13612W applies descending weights across the same four lookbacks, emphasizing the shortest: twelve parts the 1-month return, four parts the 3-month, two parts the 6-month, one part the 12-month, divided by four. Used for canary sign-testing and universe ranking in the defensive and protective allocation strategies.
- Moving-average gates ask a different question entirely: is the asset above its own trailing average, yes or no. Triad's defensive sleeve is gated this way rather than by a momentum comparison.
What all of these have in common
- They use completed months only. Signals are computed from the prior month's closing data and applied to the month ahead.
- They are cumulative returns, not annualized ones. A 6-month return is the actual compounded return over six months.
- They are total return figures, including dividends and distributions.
- They are compared, not thresholded. With few exceptions, momentum is used to rank assets against each other or to test one against cash, rather than checked against some fixed number.
Why any of this works
The honest answer is that nobody knows with certainty, and the strategies do not depend on knowing. Momentum's persistence across a century of data, across asset classes, and across markets is one of the most heavily documented effects in finance, and it has survived publication, which most claimed anomalies do not.
The common explanations involve investors reacting to news gradually rather than instantly, and then overreacting once a trend is established. Whether that is the true mechanism is not something a backtest can settle.
What we can say is narrower and more useful: over the full record available, ranking assets by these formulas and holding the leaders has produced better risk-adjusted outcomes than holding everything through everything. That is an empirical claim about the past, and it is the only kind of claim any of this can support.
Where to see the numbers
Each strategy's page shows the signal values driving its current allocation, using whichever formula that strategy actually employs. If a strategy is Risk Off and you want to know how close the call was, that is where to look.