I don’t know if it is just the case of like-minds thinking alike, but I just was over at Dog’s site and found a discussion of using the percentage of stocks on RSI(2) < 10 as a breadth indicator. Funny that – as I was working over the past two days on just such a system. Of course, this is what I love about the internets – you have a group of people that have never seen each other being working together in all sorts of interesting ways.
Here are the details:
- I started by taking the stocks of the S&P500. I ran an Amibroker scan on them summing up the number of stocks, over time, with an RSI(2) < 10 and RSI(2) > 80.
- I then graphed this data – screenshot below.
- Then I setup a simple system – buy when the RSI(2) > 80 crosses over the RSI(2) < 10. Sell on the opposite event. For the test I used the SPY as a proxy for the S&P500 in order to make the breadth indicator do the hard work – in other words, I didn’t want individual stocks’ performance affecting the results.
- The end result: STOCK TRADING SYSTEM FAIL! The system is currently very poor. Winners only 44% of the time which wouldn’t be so bad except it’s not a trend following system.
- In any case, I’m posting the results and some screenshots – if anyone has any ideas, let me know. If anyone wants some code samples just email me. Also, if anyone wants my generated RSI(2) data on this stuff to play around with, I’m happy to provide it – just hit me with an email. Let me know the group of stocks/index and any other settings.
Here’s what the indicator looks like on-screen:
|Net Profit %||29.38%|
|Net Risk Adjusted Return %||42.95%|
|Annual Return %||1.28%|
|Risk Adjusted Return %||1.88%|
|Avg. Profit/Loss %||0.08%|
|Avg. Bars Held||8.66|
|Winners||209 (44.56 %)|
|Avg. Profit %||2.01%|
|Avg. Bars Held||11.89|
|# bars in largest win||24|
|Losers||260 (55.44 %)|
|Avg. Loss %||-1.46%|
|Avg. Bars Held||6.05|
|# bars in largest loss||22|
|Max. trade drawdown||-1931.6|
|Max. trade % drawdown||-11.44%|
|Max. system drawdown||-8072.9|
|Max. system % drawdown||-43.98%|
|Ulcer Performance Index||-0.21|
|Sharpe Ratio of trades||-0.17|