Directional Trend Index Strategy

The Directional Trend Index, DTI, is a trading indicator that uses the high/low momentum to calculate the increasing momentum of the highs in an up market and the decreasing momentum of the lows in a down market.

The DTI slope tells you about the direction of the market or security price. The higher the indicator slope the stronger the security's rise.

This trading system is a long/short strategy that uses the DTI indicator and trades only S&P 500 stocks. A maximum of six positions are allowed at the same time.

It enters long (buy) when the DTI crosses above -10
It enters short (short) when the DTI crosses below zero

The strategy has two stops:

10% Stop Loss
10% Profit Stop

Backtesting Result: (2000-2012 Period)
Annual return of 19%
Sharpe ratio: 0.82

A buy and short liquidity rule should be added if you want to run this trading system on other stocks (Example: Russell 2000 stocks):
Example: 5-bar average daily volume in dollars is higher than 50,000.

To backtest or use this strategy in a portfolio, you must download and install the DTI indicator. This indicator can be found here: Directional Trend Index.

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