Ratio of open-close to high-low range

by Caleb, 5208 days ago		Share \|

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.