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September 2006 Stocks and Commodities Traders Tips


Trading With an Adaptive Price Zone

Original article by Lee Leibfarth
AIQ Code by Richard Denning

The AIQ code for Lee Leibfarth’s Adaptive Price Zone Indicator and the related trading system is shown below. Since AIQ is well suited to simulate trading a portfolio of stocks, I tested the system on the NASDAQ 100 list of stocks using the Portfolio Manager. I did a rough optimization on the long side of the trading system using the bullish period starting from 10/15/02 to 7/11/06. I used the ADX value descending to pick three trades per day, 10% each and a maximum of 10 open positions. The results of the first test show that the long side of the system outperforms the NASDAQ 100 index (see figure 1 which shows an average return of 28.7% with a Sharpe ratio of 1.35). I then tested the short side, using the parameters from the first test, over the bearish period 9/01/00 to 10/15/02 and again the short side out performed the NASDAQ 100 index (see figure 2 which shows an average return of 36.3% with a Sharpe ratio of 1.07). However neither the long nor the short side of the system performed when the test periods were reversed. The long side when tested during the bearish period from 9/01/00 to 10/15/02 showed an average loss of 22.4% with a Sharpe ratio of –0.58. The short side when tested during the bullish period from 10/15/02 to 07/11/06 showed an average loss of 24.6% with a Sharpe ratio of –1.24. Before trading this system on stocks, it appears that a market-timing filter should be added.

EDS Code for Adaptive Price Zone Indicator
Adaptive Price Zone Bands.EDS

FIGURE 1 (click here to view).

FIGURE 2 (click here to view).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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