May’s Stocks & Commodities magazine article “In The Volume Zone” by Walid Khalil and David Steckler
has been coded by Rich Denning.
I have coded both the volume zone oscillator (Vzo) and the system that uses the Vzo indicator. I used my own interpretation of what the rules of their system mean since the exact code for the system is not given in the article. The divergence sell/cover rules were especially troublesome to interpret, so my version may not be what the authors intended. In addition, note that the nontrending case is not provided or tested.
I ran a backtest using the Portfolio Manager module from 1/1/1998 to 3/11/2011 using the Nasdaq 100 and also the Russell 1000 list of stocks. In Figure 8, I show the test results of simulated trading on the Nasdaq 100 list of stocks using the following parameters for capitalization:
- Maximum positions per day = 3
- Maximum total positions allowed = 1
- Choose candidates using ADX values in descending order
- Size each position at 10% of total account equity, recomputed daily.
Figure Above: AIQ SYSTEMS, volume zone oscillator AND SYSTEM. This shows the equity curve for the VZO system trading long only using the NASDAQ 100 list of stocks compared to the SPX index for the test period 1/1/98 to 3/11/11.
For the test period, the average annual return was 13.5% with a maximum drawdown of 49.9% on 12/31/2002.
The short side test was unsuccessful, as the system lost all its capital during the early years of the test. (Results not shown.) I tried adding an index trend filter, but this did not save the short side from total loss.
The code and Eds file can be found at below or can be downloaded from http://tradersedgesystems.com/aiq/traderstips/traders-tips-may-2011.htm
