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The Stochastic Trend Filter
A trader mate of mine asked me to create a stochastic filter for him.
He wanted one that would use stochastics to determine the character
of the predominant trend.
He wanted to do some backtesting, taking only (short-term) long
trades when a stochastic filter showed the predominant trend was
positive & only (short-term) shorts when it was negative.
He uses stochos as an important part of his trading system.
I'm sure he knows them upside down & inside out, so he obviously just
wanted somebody to take a fresh look, without any of his bias.
After checking it out he reckons it's cool and works better than what
he used previously, tho he reckons there are nuances he wants to
investigate further. So for him it's early days.
Anyway here 'tis for your evaluation and edification.
I trust it may be of value.
Regards, good trading and have a good weekend,
Gerard
// Stochastic Trend Filter
periods = Param( "Periods", 15, 1, 200, 1 );
Ksmooth = Param( "%K avg", 50, 1, 200, 1 );
Plot( IIf(EMA(C,Ksmooth)>Ref(EMA(C,Ksmooth),-1),StochK( periods ,
Ksmooth),0),"",27) ;
Plot( IIf(EMA(C,Ksmooth)<Ref(EMA(C,Ksmooth),-1),StochK( periods ,
Ksmooth),0),"",4) ;
/*
INTERPRETATION
So the deal is;
NB. The Filter is designed for those taking relatively short term
trades, say up to 15 bars max.
When green line is on top the Predominant trend is positive, take
only long signals, red on top then only shorts are allowed.
That's it.
Its rather simple construction belies the effort spent on its
development.
In short what I needed to do was to identify, in a general way, the
trends a data series may contain, and then determin the specific
trend ( the predominant one) that should be applied to a specific
trading time frame.
*/
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