Thursday, April 26, 2007

Cross Over - The Filter

I have been working on the Cross Over filter for several years and I think I might have finally found one that is everything I look for in a filter - good short term and excellent swing trade potential rolled up into one common package. Here is the filter -
show stocks where close is between 15 and 35
and average volume(90) > 500000
and open < ema(21)
and open < ema(8)
and open < ema(4)
and close > ema(21)
and close > ema(4)
and close > ema(8)
and close > open
and close 3 days ago < ema(21)
and close 5 days ago < close 3 days ago
and close 5 days ago < ema(90)

For a long time I was trying to manipulate the EMAs so that the bundle of averages formed the correct (in my mind) sequence. Then it occurred to me that all I really care about is for the open to be below the three traces and the close to be above them and I really didn't care what sequence they fell into.

The next important step was the fact that I wanted the previous closes to be below the crossing bar and adding the additional requirement that the close of 5 days ago be below the close of 3 days ago adds tremendous value to the entire process.

And believe me when I say that it tests significantly better when the close 5 days ago is below the EMA(90) than when it is above.

When I ran my first tests I was pretty pleased with the results. Long time readers know that the current test period (11/06-3/06) is a very difficult period and it takes a serious filter to break through the malaise of end of year into early year trading. Well this one kicked it - and soundly. After seeing that I tested both sides of the current period and came away with some very good numbers. Here are those results

The Net Change numbers are also impressive

So once again - a simple filter with significant results.

This is not an invitation to speculate on the stock market. If you don't have the stomach for risk I would suggest you buy a market-tracking ETF such as the SPY and amaze all your friends with your constant Beta of 1 and non-existent Alpha.

1 comment:

Anonymous said...

Thanks for sharing this Marlyn, some great info!