Archive for the 'test' Category
Over at the Wall St. Warrior blog I happened to catch the chart he posted this morning on the Nasdaq Composite. He always has lots of graphs and data that can be helpful knowing where the market is. Thanks Jaime for a great blog.
I repost that chart here with his notes. I want to run a simple backtest based on something I am seeing.
Look at the RSI indicator in the upper pane. It appears to have just crossed under the value of 68 yesterday. I wanted to test what that may portend for the market going forward.
We will buy the open the day after the cross under of 68 on the 14 period RSI and test exits at 5,10,and 20 days later. I tested on the Nasdaq Composite going back 20 years. Here are the results of that scan.
Not what you may expect but the level of out performance in the 5 and 10 day holding periods is over 2 times the average 5 and 10 day hold. Even 20 days later were still almost 1.5 times an average 20 day hold. Does this mean we definitely go up these amounts. Not at all. There were many losing trades as well. But were looking at all of the trades in aggregate.
Typically these high readings happen in bullish environments and those tend to be supportive in the short term at least. As to what will happen - who knows?
As I was playing around with the parameters of the test I inputed the MACD level as well. notice in the chart it is above the 40 level. If I add this parameter to the backtest what do you think this does? Lessens the number of trades but average winners increase dramatically in the shorter timeframes.
5 days - 0.94%
10 days - 1.58%
20 days - 1.79%
Pretty Dramatic - I love this stuff…..
Have a Great Night!
Dave Johnson