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Rules that capture the following patterns:
Stock falls from a high to a low within x bars, the high and low of the last y bars
Stock rises from a low to a high within x bars, the high and low of the last y bars
Plotting these rules on a chart help you better understand how they work.
I have done some backtesting and the results I have found is that the higher the high-low periods and the lower the number of bars at which the stock fall or rise from high(low) to low(high), the better the results.
There is a possibility to add some others conditions (that probably will help the return) within these rules, this could be the distance between the high and low or the stock volatility or the volume at the period the stock falls or rises comparing to the total average volume or the average volume between the current bar and the period used for calculating the high and low.
There is a lot of work that can be done; I have only analyzed this rule using an NBar stop for 5-20-40 bars.
The best result was found when the holding period is 5 bars.
Note also that I have applied this stock pattern to the close price, I could I have used any other time-series, relative strength index, rate of change, volatility or any numeric database field data.
If someone found these rules, or any variation of this pattern, helpful for his swing trading system or if someone want to share additional backtesting results, please don't hesitate to drop a comment. Thanks.
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.
