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Trading System Based on the CloseHL Percent Rank Oscillator
Yesterday, I have shared an indicator called CloseHL Percent Rank Oscillator. Today, I am sharing a trading system based on it.
Although, the different backtest reports of this trading system show great results, with an annualized return often higher than 40% and a Sharpe ratio above 0.8, the drawdown is still high and this could pose problems to traders seeking low risk investments.
I didn't play a lot with this trading system but I am sure someone can come up with a less risky system maybe by adding additional buy rules, sell rules, stops or by applying some money management strategies.
In order to optimize the indicator, I am using the formula directly instead of referencing the function "CloseHLPR".
An additional ranking system was added to the trading system so that it gives higher buying priority to low priced stocks. This shouldn't cause any problem because I have also added two more rules to avoid buying penny and illiquid stocks.
Rule 1: Buy only when close price is higher than $2
Rule 2: Buy only when the average daily volume is higher than $50,000
Contrary to what I have recommended yesterday, that is buy when the CloseHL Percent Rank Oscillator becomes lower than 50, the current trading strategy enters a new position when the indicator is lower than 30.
