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December 2006 Stocks and Commodities Traders Tips


Stochastics with Long-Term EMA Filter

Original article was an interview with Robert W. Colby, CMT
AIQ Code by Richard Denning

The AIQ code for George Colby’s interview is shown below. The system outlined in the article is a stochastic with moving average trend filter (SMAF) that filters out signals that would go against the long-term trend.

I decided to test the concept on stocks but also added code that uses the exact same rules on the market index, on the group index and finally on the stock that is within the group. For a signal to be generated, the market must be generating the SMAF signal as well as the group and the stock. I used AIQ’s Portfolio Simulator and a 30-day AIQ relative strength to select the strongest signals, taking 2 positions per day and a limit of 5 open positions with 20% allocated to each position.

The code provided illustrates how to use the AIQ group & sector structure to provide market and group timing for a system. Due to time constraints, I was only able to run one test on the long side of the system.

The Figure 1 below shows the equity curve for the period 1995 through October 13, 2006 compared to the S&P 500 index. The market and group filters kept the system from incurring a large draw down during the bear market of 2001 and 2002 and the results out perform the S&P 500 over the eleven-year period tested.

FIGURE 1 (click here to view).
(Equity curve for the SMAF system compared to the SP500 Index.)

EDS Code for Stochastics with Long-Term EMA Filter
Colby Stoc EMA Filter.EDS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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