Augieboo, I'm piecing together the NDR strategy from a variety of sources. In the book Research Driven Investor, Tim Hayes states:
"A single rate of change can be subject to misleading messages since a spike or temporary low in the data at the start of the period can produce a temporary high or low momentum reading. The sum of three rates of change will reduce the impact of an aberrant change."
[Note, Mr. Hayes is somewhat secretive/misleading in the statement above - he never mentions NDR's actual method, number of periods sampled, or the lengths of those periods. In the paragraph above, he mentions using 3 rates of change, however, I've read elsewhere that NDR actually samples ROCs in one day increments.]
"You should recognize that if your combination includes a relatively long rate of change, the momentum message will be dominated by that long rate of change since percent changes over long periods tend to be greater than percent changes over short periods. One way to de-emphasize the percent change of the longest momentum is to equal-weight your momentum sum by dividing each rate of change by its momentum period. If you were using rates of change of 10, 20, and 40 weeks, for instance, you would divide the 10-week change by 10, the 20-week change by 20, and the 40-week change by 40 before adding them together."
AI
