Main Description
The Rotational Momentum Tool allows users to see the hypothetical results of a momentum or relative strength rotation ranking investing strategy, with the option of adding in adaptive asset allocation, using strength calculations including momentum, volatility, Sharpe Ratio, and Information Ratio. The Rotational Momentum Tool will automatically calculate the strength, based on the momentum, volatility, mean reversion, downside volatility, Sharpe Ratio and/or Information Ratio, and at the end of each update period, switch or rotate to the highest ranked fund for the next period, also results are shown for the scenario of switching funds only when a fund has dropped below a specified rank scoring. If more than 1 symbol is selected each period the user has the option to use adaptive asset allocation on the selected funds.

Simple vs. Advanced Tools
The advanced tool has all the features of the simple tool and many more, including adaptive asset allocation on top of rotation. The simple tool allows the user to select just the tickers, the timeframe, and setup a few position scoring values as well as a cash filter. The advanced offers more position scoring options, more cash filter options, adaptive asset allocation if you are rotating between 2 or more funds, and more…


Select Data Feed
Select a data feed to use. The Universal Data Feed has been our default data feed, and provides stock, ETF, and mutual fund data for the US and non-US markets. The Professional Quality Data Feed provides high quality data for US stocks, ETFs, and mutual funds. Additionally there is an option to select historical data, which allows users to select funds with histories that go back as far as 1924.

Enter Tickers
Enter an unlimited number of almost any stock, ETF, or mutual fund ticker into Tickers list separating each ticker by a comma. Each ticker entered will be available to choose based on if it’s position score is high enough.

Start/End Simulation Date
The date values to start and end the simulation. If a ticker is unavailable for some of the date range entered the default behavior will be to only test the dates when all tickers are available.

Frequency of Updates
This setting allows the user to choose how often the conditions are evaluated and updates to allocation are made. For example a monthly update means once a month (at the end of the month), the back tester calculates the new weight values based on each one of the 5 algorithms and adjusts the weightings of each ticker to match the weightings reported by each of the algorithms. These weightings will be held until the end of next month when the back tester will evaluate (ask the question) again and re-weight the portfolio according to the new values for each algorithm.


Invest in Top N Funds
Enter the number of funds you want the Rotation Backtester to rotate into each period. For example if you choose to invest in 2 funds (N=2) then each period the back tester will choose 2 funds from your list of symbols and invest in those based on which 2 where the strongest.

Keep Position Until Rank is Below K (Advanced Rotation Tool Only)
Enter the rank at which a fund will be changed out for the higher weighted fund. This setting allows the user the ability to decide if a fund should be replaced immediately after it falls outside the Top an or stay in until it falls even lower. This can reduce turnover while still having many of the benefits of sector rotation. A chart of this “Keep” strategy is placed alongside the traditional Top N chart described above.

Cash Filter
When a fund falls below a specified moving average you may decide to pull that investment and invest in a cash or bond fund (or any ticker you choose). With the cash filter settings you have the option to turn the cash filter on and off, select the symbol you would like to invest in instead, and select the moving average method and length that will cause the switch to occur. If the box labeled ‘Try The Next Best Selection(s) before going to Cash ETF’ is selected, the next fund will be tried if the top fund is below the moving average before resort to the cash filter fund as a last resort. For example you are invested in a stock market, but the price is below the 200 day moving average, so you may use the cash filter to invest in a short duration bond instead this limiting your risk in a bearish market. If the fund is below either cash filter moving average then the cash filter is active.
Invest in Cash Filter Fund if Cash Fund Outperforms Top X Fund: If the cash filter fund selected outperforms any of the funds in the list, then invest in the cash filter fund instead of that fund even if it is above the moving average.

Position Score Calculations
Position Score is used to determine which funds in your list to invest in. The top scoring funds are chosen each month based on which fund is the strongest. Position score can factor in momentum (relative strength), volatility, downside volatility, sharpe ratio, information ratio, and mean reversion. You may choose 3 time-frames and weightings for each weighting method and use all 4 methods of you choose to arrive at a final position score that will determine what funds to invest in next period.

​Lookback Lengths
For each of the weighting algorithms the lookback length can be adjusted. This setting will control the number of months the Momentum, Sharpe Ratio, or Information Ratio, or Volatility will be calculated on to determine the fund selected.

F Factor
The F factor can be adjusted for the Sharpe Ratio and Information Ratio. This setting allows the user to adjust how important volatility is in the calculation of the Sharpe Ratio and Information Ratio. A setting of 0 means volatility is disregarded, a setting of 1 is the standard way these ratios are calculated, and a setting of more than 1 means the the volatility is becoming more and more important to the calculation.

Downside Volatility
Only count downward movements as volatile events, not upward (gaining movements). This is a modification of the standard volatility calculation to make sure we do not penalize funds that are performing well, thus causing a traditional volatility calculation to see up moves as a bad thing.

Mean Reversion
Mean Reversion allows users to consider some recent down moves as having a positive effect of position scoring, instead of a negative one. This is often thought of as an attempt to get a discounted price on an already good performing stock fund.

Calmar Ratio
The Calmar ratio is the ratio of the returns to the maximum drawdown applied over a specific number of days. This rewards funds that perform well, and have low drawdown, and penalizes bigger drawdowns and lower returns. The length (in days) defines the window over which the return is calculated, and the maximum drawdown is found.

Settings for Calculating Asset Allocation
(Only Available in Advanced Rotation Tool)
If you are investing in more than 1 symbol you may decide to use asset allocation to decide how much of each symbol to invest in. The default setting is equal weighting for all symbols, but you may choose to maximize Sharpe Ratio, maximize Information Ratio, minimize Volatility, minimize Variance, and maximize the position score used to determine how much the weighting is for each fund.

Lookback Lengths
For each of the weighting algorithms the lookback length can be adjusted. This setting will control the number of months the Sharpe Ratio, or Information Ratio, or Variance, or Volatility will be calculated on to determine the weighting of the funds.

F Factor
The F factor can be adjusted for the Sharpe Ratio and Information Ratio. This setting allows the user to adjust how important volatility is in the calculation of the Sharpe Ratio and Information Ratio. A setting of 0 means volatility is disregarded, a setting of 1 is the standard way these ratios are calculated, and a setting of more than 1 means the the volatility is becoming more and more important to the calculation.

Dampening Allocations
Dampening Allocations limits the full affect of the weighting algorithm. For example the Sharpe Ratio calculation will often cause allocations to go to 0% if the value is negative for that period, this may be undesirable; a lower dampening ratio will cause the minimum allocation to be >0% so a fund will not be totally absent from your portfolio, the full effects of the Sharpe Ratio will thus be “dampened”. A dampening ratio of 100 means the the dampening is off (the weighting algorithm can operate without interference). A dampening ratio of 0 means the maximum dampening will be applied to the portfolio, at 0 the weightings will not be far from an equally weighted portfolio.

Benchmark Fund Ticker
This is the fund shown on all the graphs to compare the results of the backtest against, that is the benchmark. By default this is the S&P 500 Index, but it can be changed to any index, mutual fund, ETF, or stock fund.

Save Your Settings For Later
At the bottom of the settings area there is a URL, bookmark or save this URL and you will automatically be able to load and save all your settings automatically, without re-entering it every time.


​The tool outputs fully interactive charts showing day to day equity (not just monthly data), day to day draw down, transitions from stock to cash symbol, a summary of performance, % allocation per symbol, annual/monthly performance table, and a full trade list.


Downloads that are available are a full trade spreadsheet, day by day strategy equity spreadsheet (which can be uploaded to any of our portfolio combination tools), and a list of settings you used to create the results. You may also download an HTML report with fully interactive graphs that you can save and send to others.

Example Strategies and Settings

Rotation Tool – Simple Portfolio
This strategy rotates between SPY, MDY, and TLT tickers. This strategy is a very simple rotation between 2 stock ETFs and 1 bond ETF to show the power of simply rotating out of stocks when they are weak and into bonds.

Settings for Members: 34% 3 Month Momentum, 33% 4 Month Momentum , 33% 5 Month Momentum,
no cash filter needed, choose top 1, update Monthly

Rotation Tool – Ivy Portfolio
This strategy rotates between SPY, EFA, BND, VNQ, DBC tickers. This strategy was made popular by the book: The Ivy Portfolio and seeks to provide a diverse rotation.

Settings for Members: 100% 3 Month Momentum
cash filter using the 130 day simple moving average with IEF as the cash filter ticker, choose top 1, update Monthly

Rotation Tool – Sectors + Bonds Portfolio
This strategy rotates between XLE, XLV, XLP, XLY,X LF, XLB, XLU, TLT, and IEF tickers. This strategy is the classic sector rotation strategy that allows investing in the top 2 sectors each month and goes into bonds when sectors are performing poorly. Additionally this strategy weights the top 2 with asset allocation instead of strictly equally.

Settings for Members: 66% 3 Month Momentum, 34% 4 month volatility,
no cash filter needed, choose top 2, use Sharpe based asset allocation with 3 month sharpe length at 0% dampening, update Monthly

Rotation Tool – Aggressive
This strategy rotates between SPY, EFA, and GLD tickers. This strategy combines multiple markets as well as a cash filter to provide excellent returns. It incorporates a feature of the Rotational Backtester called “Keep K”, this allows you to choose the option of keeping a fund until it falls below a rank instead of immediately discarding it for the top fund, this is a way to reduce rollover.

Settings for Members: 34% 3 Month Momentum, 33% 2 Month Momentum, 33% 2.5 Month Volatility,
choose top 1 but keep the ticker until it falls below the rank of 2, update Monthly,

Rotation Tool – High Return
This strategy rotates between MDY, ZIV, TLT, SHY tickers. This strategy allows investment in very high performing (and very volatile funds) as well as lower volatility options such as SHY. Rotating these tickers allows only investing in the very volatile funds when the strength is high, and switching to more conservative funds when the markets are weak.

Settings for Members: 50% 3 Month Momentum, 25% 3 Month Sharpe, 25% 6 Month Sharpe,
no cash filter needed, choose top 1, use Sharpe F Factor of 0.5 (default), update Monthly is not a registered investment advisor and does not provide professional financial or investment advice. is a tool that produces trade signals and backtesting results according to the set of funds and rules provided for analysis. Any strategies shown including but not limited to the pre-built strategies are only used to highlight what is possible using these tools, they should be regarded as educational in nature only, and not investment advice.