PythagorasGoal/docs/diary/2026-06-19-trackI-momentum-reversal.md

Track I — Alternative momentum formulations + long-horizon reversal (2026-06-19)

Script: scripts/research/trackI_momentum_reversal.py (self-contained, runnable). Universe: BTC & ETH only. TF: 12h + 1d (sub-12h excluded by rule). Harness: identical honest machinery to TP01 — direction decided <= close[i], positions held next bar (pos_held[1:] = tgt[:-1]), vol-target by inverse PAST-ONLY realized vol (target 20%, lev cap 2x), NET fee 0.10% RT on turnover, 50/50 BTC+ETH. OOS 65/35 + per-year + fee sweep (0.00–0.40% RT). Correlation to TP01 net returns reported for every candidate.

Goal

(A) A momentum formulation that BEATS or DIVERSIFIES the canonical 1-3-6m sign-blend (TP01, Sharpe ~1.32). (B) Does the classic LONG-HORIZON REVERSAL (fade ~12m winners) give an uncorrelated positive overlay?

PART A — momentum formulations (12h, long-flat, vs TP01 Sharpe 1.32 / OOS 0.90 / DD 13.3%)

formulation	Sharpe	IS	OOS	CAGR	maxDD	corr→TP01	BTC	ETH
baseline sign-blend 1-3-6m	1.32	1.54	0.90	+16%	13.3%	1.00	1.15	1.10
(i) z-score cum-return (tanh)	1.35	1.63	0.85	+12%	8.4%	0.96	1.30	1.00
(ii) risk-adjusted momentum	1.27	1.49	0.84	+13%	9.5%	0.97	1.21	1.00
(iii) EMA-cross trend	0.81	0.91	0.62	+11%	25.1%	0.85	0.89	0.53
(iii-b) MACD (calendar spans)	1.50	1.87	0.74	+22%	17.7%	0.69	1.30	1.32
(iv) Donchian breakout	1.10	1.36	0.57	+17%	25.0%	0.86	1.08	0.82
(v) acceleration (Δ-momentum)	1.28	1.82	0.35	+14%	14.2%	0.66	1.25	0.81
(vi) 12-1 skip momentum	0.67	0.79	0.47	+9%	24.5%	0.68	0.70	0.49

Results are essentially identical at 1d. Read-out:

• Nothing cleanly beats the sign-blend OOS on both assets. The headline-Sharpe leaders are artefacts of in-sample fit: MACD posts IS 1.87 but OOS collapses to 0.74 (gap = overfit) with a worse DD (17.7%); acceleration IS 1.82 → OOS 0.35 (worst OOS decay of all). Both fail.
• (i) z-score continuous momentum is the one mild, honest refinement: Sharpe 1.35 (≈baseline) but maxDD 8.4% vs 13.3% — the continuous score scales down position when the cumulative move is statistically small, de-risking the tails. OOS 0.85 (slightly below baseline 0.90), CAGR drops 16%→12%. It's a smoother sibling of TP01, not a new edge (corr 0.96).
• (vi) 12-1 skip (classic equity "12-1" momentum) does NOT help crypto: skipping the recent month removes the strongest part of the signal here → Sharpe 0.67, corr 0.68. Crypto momentum lives in the recent window, opposite to the equity stylised fact.
• Breakout/Donchian and EMA-cross are strictly worse (high DD, weak OOS).

PART B — long-horizon reversal (fade past winners), 12h

Long-short reversal (short ~12/18/24m winners, long losers, vol-targeted):

reversal LS	Sharpe	OOS	CAGR	maxDD	corr→TP01
12m	-0.77	-1.15	-14%	73%	-0.51
18m	-0.36	-0.75	-8%	58%	-0.47
24m	+0.04	-0.07	-1%	43%	-0.32
12-18-24m	-0.46	-0.72	-8%	57%	-0.54

• Long-horizon reversal is NOT a standalone edge. Standalone it LOSES money (12m/18m strongly negative; only 24m is ~flat at Sharpe 0.04, OOS −0.07, and even that fails "net-positive OOS on both assets": BTC +0.10 / ETH −0.03). Fading crypto winners over a year just shorts the trend.
• It IS genuinely negatively correlated to TP01 (24m: corr −0.32; 12-18-24: −0.54), as expected (it's the opposite sign of medium-term momentum).
• Momentum + reversal blend (long 1-6m momentum, brake on very-long extension): the variant mom(1-3-6) − 0.5·rev(12-24) is the most interesting single-strategy result — Sharpe 1.38, OOS 0.98 (> baseline 0.90), maxDD 10.6% (< 13.3%), both assets positive (BTC 1.25/ETH 1.05), corr 0.91, fee-robust (1.43→1.22 across 0.00–0.40% RT). CAGR drops 16%→12%. It is TP01 with a long-term-extension brake: a modest risk-adjusted improvement, not more return.

COMBINED — TP01 + best diversifier (blend net returns)

TP01 alone: Sharpe 1.321, CAGR +16%, maxDD 13.3%, OOS 0.90.

combo	Sharpe	CAGR	maxDD	OOS	corr
TP01 + 20% reversal-24m (LS)	1.411	+13%	11.5%	1.06	-0.32
TP01 + 30% reversal-24m (LS)	1.366	+12%	11.8%	1.06	-0.32
TP01 + 20% reversal-12-18-24 (LS)	1.350	+11%	10.6%	0.84	-0.54
TP01 + 50% z-score	1.348	+14%	9.5%	0.89	+0.96

• Adding a small slice of reversal-24m long-short lifts portfolio Sharpe 1.32→1.41 and OOS 0.90→1.06 while cutting DD to 11.5%. But be skeptical: the overlay is a ~zero-mean stream (standalone Sharpe 0.04). The benefit is almost entirely variance reduction from the negative correlation, not added alpha — and it COSTS return (CAGR 16%→13%). With a true-zero-edge diversifier this Sharpe bump is fragile (it leans on the −0.32 correlation persisting OOS, and the OOS sample is one 2022-24 crypto cycle). I would NOT deploy capital on a standalone-losing sleeve to chase a 0.09 Sharpe point that is really de-risking.

Fee sweep (12h portfolio Sharpe)

baseline 1.37→1.18, z-score 1.38→1.24, MACD 1.52→1.45 (lowest turnover), blend 1.43→1.22, reversal-24m 0.07→−0.02 (0.00→0.40% RT). All trend formulations survive realistic fees; reversal has no positive margin to survive on.

VERDICT (honest)

• Is there a momentum formulation that beats the 1-3-6m sign-blend? No — not OOS, not on both assets. MACD/acceleration look better in-sample but decay OOS (overfit + higher DD). The only honest refinement is continuous z-score momentum, which matches the Sharpe with materially lower drawdown (8.4% vs 13.3%) — a smoother variant of the SAME edge, not a new one (corr 0.96).
• Does long-horizon reversal give an uncorrelated positive overlay? No, not a real one. It is uncorrelated/negatively-correlated (good) but not positive standalone (it loses, or at best is flat at 24m and fails the both-assets bar). The combined-Sharpe lift (→1.41) is variance reduction from a near-zero-mean stream and sacrifices CAGR — fragile, not bankable alpha.
• The ~1.3 structural Sharpe ceiling on BTC/ETH-only holds. TP01 remains the deployable winner. If anything, swap the sign-blend for the z-score continuous score (or the mom − 0.5·rev brake) for a lower-DD profile at equal Sharpe — a risk-management tweak, not a return upgrade.