In this post we want to share one of the indicators we have developed to analyze price behavior. Daily timeframe is preferred in this case because once the entry set-up is identified and Take-profit and Stops are set, you don’t need to stay in front of the monitor all-day long to look at indicators or other signals.
The idea being explored with this indicator is very simple:
- Check opportunity to OPEN a position when market open
- CLOSE the position when the Take profit is reached or the Stop is hit.
We use this set of conditions:
- Close > Close[1]
- Daily close % variation > Threshold 1 (0.5%)
- Daily close % variation < Threshold 2 (2%)
- (Close[2] < Open[2]) or (Close[3] > Close[2])
As you can see conditions are very simple and basically aims at identifying stocks that are in positive trend; the picture below show an example on $AAPL stock, you can see that the pattern happens quite frequently.
To perform backtesting on this indicator, the following conditions have been added:
- Take profit: 1%
- Stop loss: 10% (due to this market volatility)
- If a position is still open after 4 days -> we close the position
Below picture summarize the backtesting results.
As you can see backtesting show good equity line shape, confirming the interesting approach provided by the indicator.
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