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The Ratio of open-close to high-low range is a simple technical analysis indicator that uses the four basic elements of a bar candle (Close, open, high and low).
The open-close range is computed by taking the absolute value of the difference between the open price and close price, while the high-low range is the difference between the high price and the low price; no need to take the absolute value here because the high price is always higher than the low price. The ratio simply returns a value that corresponds to the division of the first range (open-close) by the second one (high-low). Values cannot be higher than one because the high-low range is always greater than the open-close range.
The function name of the ratio of open-close to high-low range is "RatioOCHL" and it accepts no arguments or parameters. Values returned by this ratio indicator are choppy and therefore this trading indicator requires a smoothing process, such as applying a simple or exponential moving average.
Based on few backtests I have done, It seems that the indicator is bullish when its 20-Bar simple moving average value is higher than 80. The simulation was performed on few stocks and it generated only 24 trades with an average return of 0.688% and a percentage of winners' value of 70.83%. The holding period is 5 bars for all trades (Buy then sell after 5 bars).
By simply adding another volume-based rule, the trading strategy performance has greatly improved for all backtests I have done. For the last trading system, the number of trades becomes 5 (all winners), the average trade returns increased to 1.321%.
The trading rule was: 20-Bar simple moving average of the volume is higher than 2 times the 5-Bar simple moving average of the volume.
Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
