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August 2008 Stocks and Commodities Traders Tips

Premier Stochastic Oscillator

Original article by Lee Leibfarth
AIQ Code by Richard Denning

The AIQ code for Lee Leibfarth’s article, “Premier Stochastic Oscillator” is shown below. I ran simulations using the NASDAQ 100 list of stocks. To run tests on a portfolio level, I had to add trade selection rules, capitalization rules and modify the exits to work with stocks. However the entry signals are exactly as described by the author in the article. The trades were selected using 30-day AIQ relative strength taking the top two strongest signals per day, 20% of capital per position, with a maximum of five open positions. Positions were exited on any one of the following conditions: 1) a profit protect exit of 100% protection on profits over 4%, 2) a 5-day time exit, 3) a reversing signal, 4) a 25% disaster stop loss.

I was curious as to whether the new indicator would outperform a standard smoothed stochastic using the same parameters. I ran comparative tests over the last 10 years using the same list of stocks and the same exit conditions with the difference being in the indicator driving the entries. On the long only test-comparison, shown in Figure 1, the PSO system significantly out-performed the SK-SD system on all the various metrics. However the short side only test-comparison (not shown), was worse using the PSO. For both systems, shorting the NASDAQ 100 stocks worked only during short bear periods while both lost horribly during the rest of the 10-year period. Both of the systems need market timing and or trend filters to make the short side work. A trend filter might reduce the drawdown from the long side as well.

EDS Code for Premier Stochastic Oscillator

















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