Description
The Simple Trend Channel strategy is the second step in the trading system developed by James E. Rich and John B. Rich. The first step in the system is recognizing stocks with which this strategy should be employed; to find these stocks, use the filter based on the overall market trend direction.
In addition to the three simple moving averages calculated in the filter, the Simple Trend Channel calculates two more, this time, to produce trading signals:
- A buy to open simulated order is added if the filter indicates uptrending conditions, the close price crosses above the 8-period SMA of the high, and there is no earnings announcement scheduled for the next two days.
- A sell to close simulated order is added either if the close price falls below the 8-period SMA of the low or if it’s simply the day before the earnings are announced.
- A sell to open simulated order is added if the filter indicates downtrend, the close price crosses below the 8-period SMA of the low, and there is no earnings announcement scheduled for the next two days.
- A buy to close simulated order is added either if the close price rises above the 8-period SMA of the high or if the earnings announcement is scheduled for the next day.
Input Parameters
trend check
|
Defines how strict the trend check needs to be. |
Plots
Average
|
A 50-period SMA of the close price; used in all trend check modes. |
FastAverage
|
A 20-period SMA of the close price; used in "Normal" and "Max" trend check modes. |
SlowAverage
|
A 200-period SMA of the close price; used in the "Max" trend check mode. |
UpperBand
|
An 8-period SMA of the high price; used for signal production. |
LowerBand
|
An 8-period SMA of the low price; used for signal production. |
Further Reading
1. "Simplify It" by James E. Rich with John B. Rich. Technical Analysis of Stocks & Commodities, November 2015.Backtesting is the evaluation of a particular trading strategy using historical data. Results presented are hypothetical, and there is no guarantee that the same strategy implemented today would produce similar results.
Technical analysis is not recommended as a sole means of investment research.
For educational purposes only. Not a recommendation of a specific security or investment strategy.