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March 2016 Stocks and Commodities Traders Tips


ADX Breakouts

AIQ Version:

Original article by Ken Calhoun
AIQ Code by Richard Denning

Since I mainly work with daily bar strategies, I wanted to test the ADX concept from the article on a daily bar trading system. I set up a system that buys after a stock has “based around the 200-day simple moving average (Basing200). Basing200 is coded in the system as closing above the 200-SMA only 19 bars or less out of the last 100 bars and also in the last 10 bars the stock has closed greater than 2 bars above the 200-SMA. For exits I used the built-in exits: capital protect exit set at 80% and the profit protect exit set at 80% once profit reaches 5% or more. I then ran this system on the NASDAQ 100 list of stocks in the EDS back-tester over the period 12/31/99 to 1/11/2016. I then ran a second test on the system with the ADX filter (ADX must be greater than 40 at the time of the signal to buy. I used the same list of stocks, exits and test period. Figure 1 shows the first test without the filter: 883 trades, 1.84% average profit per trade, 1.51 reward/risk. Figure 2 shows the second test with the filter: 151 trades, 2.12% average profit per trade, 1.66 reward/risk. Although all of the key metrics are better with the filter, there is a significant reduction in the number of trades. In fact, 151 trades would not be sufficient for a trading system over this long test period. If one wanted to use the filter, then the list of stocks would need to be increased to about 2000 stocks.

Captions:
Figure 1 – EDS test results for the example system without the ADX filter.

Figure 2 – EDS test results for the example system with the ADX filter.

EDS Code:
ADX Filter.EDS
(right click and choose Save As)


 

Traders Studio Version :

Original article by Ken Calhoun
Traders Studio Code by Richard Denning

The following code files are contained in the download from the websites:

  • System: ADX_FILTER_TEST, a system to test the effectiveness of adding a ADX level filter to a simple trading system

This daily bar system buys after a stock has “based around the 200-day simple moving average (Basing200). Basing200 is coded in the system as closing above the 200-SMA only 19 bars or less out of the last 100 bars and also in the last 10 bars the stock has closed greater than 2 bars above the 200-SMA. I coded three exits: a time-stop, a stop-loss exit, and a profit-protect trailing exit.

Parameters of the system:

UseFilter if set to “1” then use the ADX level filter, if set to “0” then run system without the filter

ADXlvl = the level at which the ADX must be at before the signal become a buy signal (40 used)

maxBars = the maximum bars that a trade can be held (60 bars used)

stopLoss = the decimal that is the maximum stop loss before an exit is triggered (0.20 used)

ppTrig = the decimal minimum profit level that is required to activate the profit protect trailing exit (0.05 used)

pftProtect = the amount of the profit to protect in decimal (0.80 used)

I then ran this system on the NASDAQ 100 list of stocks in the session manager over the period 2000 to 2014. I then ran a second test on the system with the ADX filter (ADX must be greater than 40 at the time of the signal to buy). I used the same list of stocks, exits and test period. Figure 1 shows the results. The first column shows the results without the filter: 798 trades, $8.35 average profit per trade, 1.02 profit factor (PF). The second column shows the results with the filter: 258 trades, $190.51 average profit per trade, 1.62 PF. Although all of the key metrics are better with the filter, there is a significant reduction in the number of trades. In fact, 258 trades would not be sufficient for a trading system over this long test period. If one wanted to use the filter, then the list of stocks would need to be increased significantly.

Captions:
Figure 1 – Comparison of test results with and without the ADX filter on the NASDAQ 100 list of stocks for the period 1/1/2000 to 7/11/2014.

Traders Studio Code:
ADX FILTER TEST.zip
(right click and choose Save As)

 

 

 

 

 

 

 

 

 

 

 

 

 

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