The AIQ code for Sylvain Vervoort’s put/call ratio indicator — named the IFTStoch indicator — and the related system from his article in the November issue of Stocks & Commodities, “Applying The Put/Call Ratio Indicator,” is provided at the website noted at the end of this writeup.
The code has been modified from the author’s formulas, which used weighted averaging. That type of averaging is not offered in AIQ as a built-in function and had to be coded long style; the result was very inefficient code that ran too slowly to be of any use. So I modified the formulas by substituting exponential averaging for the weighted averaging. The code now runs fast enough to be useful, and the indicators can be plotted without hanging up the processor.
I believe that the modified code can produce similar results. Although the values are not the same as the author’s values when using the same parameters, the resulting shapes of the indicators are similar.
On my website, I have a “PCratio.dta” data file that can be downloaded and saved into the “C:wintes32tdata” folder. Once the file is saved, go to the Data Manager module and run the utility “Rebuild Master Ticker List” to complete the data file installation process.
Using the system from Vervoort’s article called the SVE_Stoch_IFT, I ran a test on the NASDAQ 100 list of stocks using the Portfolio Manager module. The following capitalization settings were used:
- Maximum of 10 open positions
- Size each position at 10% of mark-to-market total capital
- Take no more than three new positions per day
- Compute the mark-to-market capital each day
- Choose signals based on the IFTStoch indicator for ranking in descending order for longs.
In Figure 6, I show the equity curve for long-only trading on the NASDAQ 100 list of stocks. The return averaged 19% per year with a maximum drawdown of 50% on March 9, 2009.
The short side, when tested separately from the longs, lost 91% of the initial capital by January 7, 2004, and then ceased to trade due to limited capital. The results of the short-side test are not shown.
I did not attempt to filter the trades using the put/call ratio indicators, since the author did not supply specific code for this purpose.
The code and EDS file can be downloaded from www.TradersEdgeSystems.com/traderstips.htm.
—Richard Denning
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