The AIQ code based on Ken Calhoun’s article in the March 2016 issue of Stocks and Commodities, “ADX Breakouts,” is provided at www.TradersEdgeSystems.com/traderstips.htm.
Since I mainly work with daily bar strategies, I wanted to test the ADX concept from the article on a daily bar trading system. So 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:
- The stock closing above the 200-SMA only 19 bars or less out of the last 100 bars, and
- The stock closing greater than two bars above the 200-SMA in the last 10 bars.
For exits, I used the following built-in exits: a capital-protect exit set at 80% and a profit-protect exit set at 80% once profit reaches 5% or more.
I ran this system on the NASDAQ 100 list of stocks in the EDS backtester over the period 12/31/1999 to 1/11/2016. I then ran a second test on the system using 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 8 shows the first test without the filter: 883 trades, 1.84% average profit per trade, 1.51 reward/risk. Figure 9 shows the second test with the filter: 151 trades, 2.12% average profit per trade, 1.66 reward/risk.
FIGURE 8: AIQ, WITHOUT FILTER. Here are the EDS test results for the example system without the ADX filter.
FIGURE 9: AIQ, WITH FILTER. Here are the EDS test results for the example system with the ADX filter.
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 2,000 stocks.
!ADX BREAKOUTS !Author: Ken Calhoun, TASC March 2016 !Coded by: Richard Denning, 1/11/2016 !www.TradersEdgeSystems.com !NOTE; THIS SAMPLE SYSTEM IS FOR !DAILY BAR TESTING OF ADX FILTER ONLY SMA200 is simpleavg([close],200). HD is hasdatafor(250). Above200 if ( [close] > SMA200 ) . Basing200 if CountOf(Above200,10) >2 and CountOf(Above200,100) 200. ADXhi if [ADX] >= 40. BuyADX if Buy and ADXhi.
This code and EDS file can be downloaded from www.TradersEdgeSystems.com/traderstips.htm.