TASC 2018-10 | The Stiffness Indicator (Katsanos)

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Traders' Tip text

The accompanying WealthScript C# code demonstrates how to implement a trading Strategy based on the rules by Mr. Katsanos. Here they are:

“Buy high” when Stiffness crosses above 90 and SPY's EMA is rising, OR
“Buy pullback” - if the close price is above 100-day SMA, Stiffness is at or above 90, SPY's 100-day EMA is rising, and short-term RSI turns up from below 40.
Sell when Stiffness crosses below 50, or
Sell after 84 days in a Position

To change system’s behavior from “buy high” to “buy on pullback”, drag synonymous slider at the bottom of Wealth-Lab’s main workspace. In accordance with the article, entering when the short-term RSI turns up from a pullback in established trend is believed to be more efficient.

Figure 1 illustrates typical trades on a chart of GoodYear.

As the current abnormal bullish market has started 9 years ago, we weren’t convinced by author’s choice of 10 years of latest data. Our backtest with 5% equity per position on a sample of historic Dow 30 stocks as of 1/1/2000 spans the 10-year range up until 1/1/2010. In addition to a vibrant recovery, this includes two bear markets. The buy-on-pullback version finished with the net profit beating Buy&Hold’s (49% vs. ~17%, after commissions). More so, with significantly lower risk (maximum drawdown -13% vs. -59.3%) and market exposure (39.2% vs. 100%).

Figure 2 highlights system’s weakness: it can lose to Buy&Hold in strong bull markets.

On a closing note, make sure to load enough historical data to run this backtest. Indicators like EMA (used as the broad market direction condition) require a fair amount of seed data (here: three times the 100-bar EMA period) to stabilize their calculation before they can be used reliably in a trading system.

Code

using System;
using System.Collections.Generic;
using System.Text;
using System.Drawing;
using WealthLab;
using WealthLab.Indicators;
using TASCIndicators;

namespace WealthLab.Strategies
{
	// Dow 30 Y2K stocks included AA AXP BA C CAT CVX DIS GE GM GT HD HWP IBM INTC IP JNJ JPM KO KODK MCD MRK MSFT PG PM SHLD T UTX WMT XOM
	
	public class TASCNov2018 : WealthScript
	{
		private StrategyParameter slider1;
		private StrategyParameter slider2;
		private StrategyParameter slider3;
		private StrategyParameter slider4;
		private StrategyParameter slider5;
		private StrategyParameter slider6;

		public TASCNov2018()
		{
			slider6 = CreateParameter("Pullback?",1,0,1,1);
			slider1 = CreateParameter("Stiffness MA",100,2,100,10);
			slider2 = CreateParameter("Stiffness Period",60,2,100,10);
			slider3 = CreateParameter("Stiffness Devs",0.2,0.1,3,0.2);
			slider4 = CreateParameter("Bars since",84,10,200,2);
			slider5 = CreateParameter("RSI Period",3,3,6,1);
		}
		
		protected override void Execute()
		{
			int maPeriod = slider1.ValueInt, stiffPeriod = slider2.ValueInt, 
				exitAfter = slider4.ValueInt, rsiPeriod = slider5.ValueInt;
			var devs = slider3.Value;
			var stiffness = Stiffness.Series(Close,maPeriod,stiffPeriod,devs);
			var rsi = RSI.Series(Close, rsiPeriod);
			bool useRsiTurnup = slider6.ValueInt == 1 ? true : false;

			var spy = GetExternalSeries("SPY", Close);
			var spyEma = EMAModern.Series(spy, maPeriod);

			for(int bar = GetTradingLoopStartBar( 100 ); bar < Bars.Count; bar++)
			{
				if (IsLastPositionActive)
				{
					Position p = LastPosition;

					if ( bar+1 - p.EntryBar >= exitAfter )	//Bars since entry ? 84 (four months)
						SellAtMarket( bar+1, p, "Timed" );
					if( CrossUnder( bar, stiffness, 50) )	//Stiffness(100,60) crosses under 50
						SellAtMarket( bar+1, p, "Stiffness < 50" );
				}
				else
				{
					if( !useRsiTurnup )
					{
						if( CrossOver(bar, stiffness, 90) )	//Stiffness crosses over 90
							if( spyEmabar > spyEmabar - 1 ) //EMA (SPY,100) > EMA (SPY,100)
									BuyAtMarket( bar+1);
					}
					else						
					{
						if( Closebar > SMA.Series(Close, maPeriod)bar )
							if( stiffnessbar >= 90 )	//Stiffness is bullish
								if( spyEmabar > spyEmabar - 1 ) //EMA (SPY,100) > EMA (SPY,100)
									if( rsibar - 1 < 40 &&  TurnUp( bar, rsi) ) //RSI is oversold and turns up
										BuyAtMarket( bar+1, "RSI TurnUp");					
					}
				}
			}

			ChartPane paneSpy = CreatePane(30,true,true);
			PlotSeries( paneSpy,spy,Color.Black,LineStyle.Solid,2);
			PlotSeries( paneSpy,spyEma,Color.Blue,LineStyle.Solid,1);
			ChartPane paneStiffness = CreatePane(30,false,true);
			PlotSeries( paneStiffness,stiffness,Color.Orange,LineStyle.Histogram,2);
			PlotSeries( PricePane, SMA.Series(Close, maPeriod),Color.Blue,LineStyle.Solid,1);
			PlotSeries( PricePane, SMA.Series(Close, maPeriod) - (devs * StdDev.Series(Close, maPeriod, StdDevCalculation.Sample)),
				Color.Red,LineStyle.Solid,1);
			ChartPane paneRsi = CreatePane(30,false,true); HideVolume();
			PlotSeries( paneRsi,rsi,Color.Violet,LineStyle.Solid,2);
		}
	}
}

Eugene (Gene Geren)
Wealth-Lab team
www.wealth-lab.com