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There was an overbought/oversold indicator described in the June 2000 Futures
Magazine called the Psychological Index. It looked sort of interesting, so I
wrote the MetaStock code for it:
{Futures Magazine, Vol.29 No.6, June 2000, P.48}
LookBack:= Input("Number of lookback periods", 2, 100, 12);
UThreshold:= Input("Upper threshold (%)", 0, 100, 75);
LThreshold:= Input("Lower threshold (%)", 0, 100, 25);
UpDay:= If(CLOSE > Ref(CLOSE,-1), 1, 0);
PsychIndex:= Sum(UpDay,LookBack) / LookBack * 100;
PsychIndex; UThreshold; LThreshold
The article described the standard lookback period as 12 bars with a level of
75% or higher being an indication of an overbought market and 25% or lower
being an oversold market. Like most overbought/oversold indicators, it will
give poor results in a strongly trending market, but perhaps using an ADX and
trend direction filter, it might prove useful.
On 5-minute bars in the bonds, you have to constantly adjust the thresholds
for an upward or downward bias, but if you increase the lookback period and
widen the signal levels for less frequent signals, the results were
interesting.
Regards.
_______________________________________________
System Tester code:
Enter Long / Close Short
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LookBack:= opt1;
UThreshold:= opt2;
LThreshold:= opt3;
UpDay:= If(CLOSE > Ref(CLOSE,-1), 1, 0);
PsychIndex:= Sum(UpDay,LookBack) / LookBack * 100;
PsychIndex <= LThreshold
Enter Short / Close Long
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LookBack:= opt1;
UThreshold:= opt2;
LThreshold:= opt3;
UpDay:= If(CLOSE > Ref(CLOSE,-1), 1, 0);
PsychIndex:= Sum(UpDay,LookBack) / LookBack * 100;
PsychIndex >= UThreshold
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