DV Indicators Manual v1 Free
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Description
2010
Indicator Manual
April 2010 | Version 1.0
DV Indicators | Copyright CSS Analytics Inc 2010 All Rights Reserved
www.dvindicators.com
Contents Introduction – Indicator Construction Principles
page 1
DV Indicators
Page 3 page
page
DV Bounded (DVB)
3
DV Stochastic (DVS)
28
DV Unbounded (DVU)
5
DV Bands (DVBU/DVBL/DVBM)
29
DV Oscillator (DVO)
6
DV Band Indicator and DV Band Percentile (DVBI/DVBP)
30
DV Super-Charged Bounded (DVSC)
7
DV Zones (DVZN)
32
DV Intermediate Oscillator (DVI)
9
DV Super-Charged Percent Exposure (DVSE)
33
DV Mean-Median Divergence (DVMM)
10
DV Bounded Percent Exposure (DVBE)
34
Rolling Exponential Moving Average (REMA)
13
Daily Historical Volatility (DHV)
35
Rolling Relative Strength Index (RRSI)
14
DV Percentile Rank Volatility (DVPV)
36
DV Fractal RSI (DVFR)
15
DV Composite Volatility (DVCV)
37
DV Adaptive RSI (DVAR)
17
DV Breakout, Composite Vol Plus, Composite Vol Minus (DVBR)
38
DV Aggregate-M (DVAM)
19
DV R-Squared Autocorrelation (DVRAC)
39
DV Adaptive Agg-M (DVAA)
21
DV Differential Autocorrelation (DVDA)
40
DV Intermediate Stretch (DVIS)
22
DV Composite Fractal Efficiency (DVFE)
41
DV Intermediate Magnitude (DVIM)
23
DV Smoothed Trend (DVST)
42
Trend Stochastic (DVTS)
25
DV Self-Adaptive Slow (DVAS)/ DV Self-Adaptive Fast (DVAF)
43
DV Trend-Minus Cycle (DVTO)
26
CSS Analytics Adaptor One (CSSA1)
45
DV Super-Smoothed Double Stochastic (DVDS)
27
Example Applications System One – DV Swing System
47
System Two – DV Combo System
49
Appendix 27 April 2010
Page 46
– Amibroker Code & Installation Instructions
DV Indicators | Copyright CSS Analytics Inc 2010 All Rights Reserved
Page 51 2
DV Bounded (DVB) SPY - Daily 12/03/2010 Close 115.46 115.46
Type: Short-Term Mean Reversion Platforms Amibroker, Tradestation, Excel Baseline Strategy Long 0.50 Suggested Usage …
September November SPY - DV Bounded (5, 252) = 0.51
December
2010
February
March 0.8 0.50996 0.2
Created with AmiBroker - adv anced charting and technical analy sis sof tware. http://www.amibroker.com
Description
“The RSI Killer”
The DV Bounded is also known otherwise as the “DV2” and was created by David Varadi to capture the normalized relative close. The “DV2” version of the DV Bounded represents the 2-period average of the relative close to the high-to-low range. The “bounded” portion represents the normalization using a percentile rank function to re-scale the indicator on the basis of the historical distribution of values.
27 April 2010
DV Indicators | Copyright CSS Analytics Inc 2010 All Rights Reserved
3
Example 1: DVB v RSI2 on SPY Amibroker Code in Appendix 1
DVB
30.40% CAGR Since 2000 Ticker: SPY Rules: Long: DVB 0.50 Period: 1-Jan-00 to 14-Apr-10 Metrics CAGR: 30.40% Sharpe: 1.23 Num Trades: 912 Average Trade: 0.33% % Winners: 62.4% DVR: 0.70 SPX Correlation: -30%
RSI2
16.20% CAGR Since 2000 Ticker: SPY Rules: Long: RSI2 50 Period: 1-Jan-00 to 14-Apr-10 Metrics CAGR: 16.20% Sharpe: 0.50 Num Trades: 60 Average Trade: 0.20% % Winners: 66.7% DVR: 0.37 SPX Correlation: -29%
27 April 2010
DV Indicators | Copyright CSS Analytics Inc 2010 All Rights Reserved
4
DV Unbounded (DVU) SPY - Daily 18/02/2010 Close 110.91 115.46
Type: Short-Term Mean Reversion Platforms Amibroker, Tradestation, Excel Baseline Strategy Long 0.0 Suggested Usage …
September November SPY - DV Unbounded (5) = 0.01
December
2010
February
March 0.008 0.00099 0.00000 -0.008
Created with AmiBroker - adv anced charting and technical analy sis sof tware. http://www.amibroker.com
Description
“The RSI Killer”
This is the unbounded variant of the DV2 that was originally introduced by Michael Stokes at MarketSci. Unlike the original DV2 - which is bounded by using a percentile rank function - the unbounded DV2 is simply a raw conversion of the average of the relative close to the high-to-low range.
27 April 2010
DV Indicators | Copyright CSS Analytics Inc 2010 All Rights Reserved
5
DV Oscillator (DVO) SPY - Daily 12/03/2010 Close 115.46 115.46
Type: Short-Term Mean Reversion Platforms Amibroker, Tradestation, Excel Baseline Strategy Long 0.50 Suggested Usage …
September November SPY - DV Oscillator = 0.65
December
2010
February
March 0.8 0.649249 0.2
Created with AmiBroker - adv anced charting and technical analy sis sof tware. http://www.amibroker.com
Description
“The Mother Oscillator”
This is the “mother oscillator” framework from which the simpler DV Bounded variant was originally derived. It was conceived in its first form as a flexible blueprint for the selection of the optimal oscillator calculation. The DVO is partially adaptive and more accurate/reliable than the original version. As a consequence it requires more historical data, and the indicator values make smoother transitions to changing volatility. As of the current writing, no other public indicator that we are aware of shows raw performance as strong as the DVO on the major indices.
27 April 2010
DV Indicators | Copyright CSS Analytics Inc 2010 All Rights Reserved
6
DV Super-Charged Bounded (DVSC) SPY - Daily 12/03/2010 Close 115.46 115.46
Type: Short-Term Mean Reversion Platforms Amibroker, Tradestation, Excel Baseline Strategy Long 0.50 Suggested Usage …
September November December SPY - DV SuperChargedBounded (5, 252) = 0.55
2010
February
March 0.8 0.545817 0.2
Created with AmiBroker - adv anced charting and technical analy sis sof tware. http://www.amibroker.com
Description
“The big brother of the DV2”
This is the smoothed and slightly altered version of the DV Bounded that delivers superior performance. The nature of the calculation is very similar, but the differences make it more responsive with less whipsaws than the original.
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DV Indicators | Copyright CSS Analytics Inc 2010 All Rights Reserved
7
Example 2: DVU,DVB,DVO & DVSC Baseline Strategy
Comparison of Baseline Strategies on SPY 3,000,000
DVO DVU Long: Enter DVU 0.0 Short: Enter DVU > 0.0, Exit DVU 0.50, Exit DVB 0.50, Exit DVO 0.50, Exit DVSC 0.0, Short: Falling and/or 0.0, Exit DVMM 0.0, Exit DVMM = 50, Short < 50 Suggested Usage …
Feb 2010
Mar 2010
Apr 2010
SPY - DV Fractal RSI
80 50 20
Description
Level 1 Adaptive
“The Level 1 Adaptive RSI”
The Fractal RSI is a “Level 1” adaptive indicator that dynamically shifts weight in the RRSI between 2 and 30 days by default. This shifting is done to accommodate changes in volatility and fracticality in the market price data. However users may select any two periods in between these bounds. The longer term bound (30 days by default) is always set to have a trend influence on the shorter-term bound. Some good parameter choices you may wish to explore include 2/30, 2/15, 3/30,3/20, 10/30, 14/30.
27 April 2010
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15
Example 4: DVFR on SPY,IWM SPY
26.17% CAGR Since 2000 Ticker: SPY
Equity Curve (Compounded) 1,000%
Rules: Long: Enter DVFR > 50, Exit DVFR < 50 Short: DVFR < 50, Exit DVFR > 50
800% 600%
Period: 18-Apr-00 to 23-Apr-10
400%
Metrics CAGR: 26.17% Sharpe: 1.20 DVR: 1.06
200% 0% 2000
IWM
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
20.60% CAGR Since 2001 Equity Curve (Compounded)
Ticker: IWM
500%
Rules: Long: Enter DVFR > 50, Exit DVFR < 50 Short: DVFR < 50, Exit DVFR > 50
400% 300%
Period: 4-Jun-01 to 23-Apr-10
200% Metrics CAGR: 20.60% Sharpe: 0.79 DVR: 0.70
100% 0% 2001 -100%
27 April 2010
2002
2003
2004
2005
2006
2007
2008
2009
DV Indicators | Copyright CSS Analytics Inc 2010 All Rights Reserved
16
DV Adaptive RSI (DVAR) Type: Intermediate Mean Reversion
^GSPC - Daily April 2010
Platforms Excel Baseline Strategy Long: Falling or 50 Suggested Usage … Feb 2010
Mar 2010
Apr 2010
^GSPC - DV Adaptive RSI
50
Description
Level 2 Adaptive
“The Level 2 Adaptive RSI”
The Adaptive RSI is a “Level 2” adaptive indicator uses the same bounds as the Fractal RSI, but determines weight based on relative profitability within the bound spectrum instead of optimization. The Adaptive RSI performs well across a broad array of instruments and does a very good job of adapting considering its limited input. It requires a lot of data to calculate and as such is only available in the Excel Plug-In.
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DV Indicators | Copyright CSS Analytics Inc 2010 All Rights Reserved
17
Example 5: DVAR on ^GSPC ^GSPC
22.64% CAGR Since 1952
Ticker: ^GSPC Rules: Long: Enter DVAR < .50, Exit DVAR > .50 Short: DVAR > .50, Exit DVAR < .50 Period: 15-Jan-52 to 23-Apr-10 Metrics CAGR: 22.64% Sharpe: 1.49 DVR: .87
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DV Indicators | Copyright CSS Analytics Inc 2010 All Rights Reserved
18
DV Aggregate-M (DVAM) Type: Intermediate/Long Blended
SPY - Daily April 2010
Platforms Excel Baseline Strategy Long >= 0.50, Short < 0.50 Suggested Usage …
Feb 2010
Mar 2010
Apr 2010
SPY - DV Aggregate M
0.8 0.5 0.2
Description
“The Composite Trend / Mean-Reversion Indicator”
The DV Aggregate M is a composite trend/mean-reversion indicator that is based on integrating the short-term and long-term price distributions. The AggM assumes that prices are noisier and tend to mean-revert in the short to intermediate term, but tend to trend over longer time periods. It has been shown to be effective across a wide array of markets and stocks and is one of the more general/robust DV Indicators.
27 April 2010
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19
Example 6: AggM on SPY, EWZ SPY
14.43% CAGR Since 2000 Ticker: SPY Rules: Long: Enter AggM > 50, Exit AggM 50, Exit AggM = 0.50, Short < 0.50 Suggested Usage …
Feb 2010
Mar 2010
Apr 2010
^GSPC - DV Adaptive Aggregate M 0.5
Description
Level 2 Adaptive
“The Level 2 Adaptive Aggregate M”
The Adaptive Aggregate M is a “Level 2” adaptive indicator like the Adaptive RSI that determines weight based on relative profitability within the bound spectrum but constrains the long-term setting to avoid changing the nature of the original indicator. It can be combined with the original Aggregate M to give more accurate signals.
27 April 2010
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21
DV Intermediate Stretch (DVIS) SPY - Daily 01/04/2010 Close 117.8
121.19
Type: Intermediate Mean Reversion Platforms Amibroker, Tradestation, Excel Baseline Strategy Long 0.50 Suggested Usage …
December 2010 February SPY - DV Intermediate Stretch(10, 252) = 0.24
March
April 0.932271 0.8
0.2 Created with AmiBroker - adv anced charting and technical analy sis sof tware. http://www.amibroker.com
Description
“The Stretch Isolator”
This is one component of the DVI that isolates the stretch in terms of net days up or down over a series of periods and is re-scaled to create an accurate and consistent measure. The stretch is not like RSI because it does not consider the magnitude of up or down days but rather the net difference. It also looks at the short, intermediate and long time frames with a net weighting on the intermediate. This is a very accurate and useful indicator for identify mean-reversion areas of value rather than actual turning points. It can also be used as a trend measurement in conjunction with the ADX (Average Directional Movement).
27 April 2010
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22
DV Intermediate Magnitude (DVIM) SPY - Daily 29/03/2010 Close 117.32
121.19
Type: Intermediate Mean Reversion Platforms Amibroker, Tradestation, Excel Baseline Strategy Long 0.50 Suggested Usage …
Oct Dec 2010 SPY - DV Intermediate Magnitude (5, 252) = 0.40
Feb
Mar
Apr 0.8 0.613546 0.2
Created with AmiBroker - adv anced charting and technical analy sis sof tware. http://www.amibroker.com
Description
“The Magnitude Isolator”
This is the other component of the DVI that looks at the magnitude of up and down movements and is smoothed to reduce noise and also re-scaled to create an oscillator that appears to move in a “wave” format. The DVIM is a great complement to the DVIS because it measures the net percentage move over a variety of look backs weighted primarily on the intermediate time-frame. Like the DVIM, it does not attempt to identify turning points, and is instead a measure of relative value that does not change as frequently as other oscillators. The “wave” movement of the indicator is ideal for “hook” type mean-reversion strategies that buy or sell following a transition from overbought or oversold levels. It can also be lengthened to create an excellent trend or relative strength indicator.
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23
Example 7: DVIS/DVIM on SPY DVIS: SPY
18.65% CAGR Since 2001 Ticker: SPY Rules: Long: Enter DVIS < 0.50, Exit DVIS >= 0.50 Short: Enter DVIS >= 0.50, Exit DVIS < 0.50 Period: 1-Jan-01 to 14-Apr-10 Metrics CAGR: 18.65% Sharpe: 0.78 Num Trades: 245 Average Trade: 0.71% % Winners: 68.57% DVR: 0.54 SPX Correlation: -18%
DVIM: SPY
13.92% CAGR Since 2001 Ticker: SPY Rules: Long: Enter DVIM< 0.50, Exit DVIM >= 0.50 Short: Enter DVIM >= 0.50, Exit DVIM < 0.50 Period: 1-Jan-01 to 14-Apr-10 Metrics CAGR: 13.92% Sharpe: 0.54 Num Trades: 271 Average Trade: 0.51% % Winners: 68.63% DVR: 0.48 SPX Correlation: 8%
27 April 2010
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24
DV Trend Stochastic (DVTS) SPY - Daily 20/01/2010 Close 113.89
Type: Intermediate Trend Platforms Amibroker, Tradestation, Excel 121.19
Baseline Strategy Long: Falling and/or >= 0.50, Short: Rising and/or < 0.50 Suggested Usage Short when it hits 0.20 from above, and long when it hits 0.80 from below
A S O N D 2008 M A M J J A S O N D 2009 SPY - DV Trend Stochastic(10) = 0.80
A M J J A S O N D 2010
A
0.83337 0.8 0.5 0.2
Created with AmiBroker - adv anced charting and technical analy sis sof tware. http://www.amibroker.com
Description
“A Super-Smoother Stochastic”
The Trend Stochastic is a super-smoothed 10-period stochastic that moves gradually relative to the standard indicator developed by George Lane. It borrows from concepts used to smooth noisy data such as momentum. As a consequence it can be used as a trend indicator or a filter for meanreversion trades. It is a number scaled between 0 and 1, where .5 is not necessarily the median point. It can be traded long anywhere above .4 to .6, and short below. Or it can be traded by observing whether the stochastic is rising or falling, and potentially a combination of both the direction of movement and relative position.
27 April 2010
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25
DV Trend Minus Cycle (DVTO) SPY - Daily 01/04/2010 Close 117.8
121.19
Type: Short/Intermediate Trend Platforms Amibroker, Tradestation, Excel Baseline Strategy Long >= 0.50, Short < 0.50 Suggested Usage …
May Jul Aug Sep Oct SPY - DV Trend Cycle Oscillator(3, 252) = 0.29
Nov
Dec
2010
Feb
Mar
Apr 0.59761 0.5
Created with AmiBroker - adv anced charting and technical analy sis sof tware. http://www.amibroker.com
Description
“The De-Cycled Trend Indicator”
The Trend-Minus Cycle oscillator is a transform that nets the difference between the trend stochastic and a calculation related to the DVDS or supersmoothed double stochastic. The DVTO is useful for markets where an intermediate trend signal is hidden or obscured by a cyclic component. This trend may occur at medium frequencies such as the S&P500 or at extremes such as the case with Oil. If the DVTO is highly unprofitable on a given market that is usually because it is mean-reverting at the intermediate level—this occurs in markets such as natural gas or gold stocks. The benefit of the DVTO is that you can use it to filter intermediate trend signals such as in the MACD or DVMM, or you can use it to combine with longer term trend indicators to create a more accurate multiple time frame system.
27 April 2010
DV Indicators | Copyright CSS Analytics Inc 2010 All Rights Reserved
26
DV Super-Smoothed Double Stochastic (DVDS) SPY - Daily 01/04/2010 Close 117.8
121.19
Type: Short Term/Intermediate Mean Reversion Platforms Amibroker, Tradestation, Excel Baseline Strategy Long = 0.80 Suggested Usage …
Jul Aug Sep Oct Nov SPY - DV Double Stochastic(10) = 0.41
Dec
2010
Feb
Mar
Apr
0.9 0.891468
0.1 Created with AmiBroker - adv anced charting and technical analy sis sof tware. http://www.amibroker.com
Description
“A Super-Smooth Double Stochastic”
The super-smoothed double stochastic is the preferred mean-reversion variant to the conventional stochastic by George Lane. The DVDS normalizes the 10-period stochastic position within the channel to increase peak/valley classification accuracy and is smoothed twice to make it less prone to whipsaws. It does not use a percentile rank classification which tends to increase median accuracy versus extreme accuracy.As a consequence is a good compliment to shorter –term oscillators like the DV2, DV Stochastic, or RSI2, or even intermediate oscillators like the DVI as it helps to increase the odds of finding a temporary bottom or top. DVDS levels below 10 and above 90 often coincide with peaks/valleys within a few days. With the broader trend, levels below 20 and above 80 tend to be the appropriate signal levels.
27 April 2010
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27
DV Stochastic (DVS) SPY - Daily 01/04/2010 Close 117.8
121.19
Type: Sort Term/Intermediate Mean Reversion Platforms Amibroker, Tradestation, Excel Baseline Strategy Long 0.50 Suggested Usage …
Sep Nov Dec SPY - DV Stochastic (2, 252) = 0.45
2010
Feb
Mar
Apr 0.8 0.710344 0.2
Created with AmiBroker - adv anced charting and technical analy sis sof tware. http://www.amibroker.com
Description
“The Short-Term Stochastic”
This is the short-term cousin of the DVDS and resembles a stochastic version of the dv2. Like a conventional stochastic it permits highly profitable entries from oversold/overbought levels when the indicator is rising/falling, and this is a much lower risk entry than classic rsi2 and dv2 variants. It isn’t designed as much for binary use, although the binary version responds better to adaptation than DV2 or RSI2 variants because it is more predictable in its oscillation. Itdoes use the percentile rank to permit a consistent number of entries.
27 April 2010
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28
DV Bands (DVBU/DVBL/DVBM) 121.19 120.825 119.289
SPY - Daily 01/04/2010 Close 117.8 DV Bands(20,252,0.975, 0.5, 0.025) = 117.38
115.191
November 2010 SPY - DV Band Indicator(20,252) = 0.70
February
March
April
Type: Charting Indicator Platforms Amibroker, Tradestation, Excel Suggested Usage …
0.992032 0.9 0.5
Created with AmiBroker - adv anced charting and technical analy sis sof tware. http://www.amibroker.com
Description
“The Rescaled Bollinger Band”
The DV Lower Band (DVBL) price is similar to the lower band of a standard Bollinger Band but is re-scaled to the annual lower band level frequency. The DV Middle Band (DVBM) price is similar to the middle band of a standard Bollinger Band--but is not the average price but rather the re-scaled average price. The DV Upper Band (DVBU) price is similar to the upper band of a standard Bollinger Band but is re-scaled to the annual upper band level frequency. DV bands ‘contain’ price more effectively because they utilise the actual distribution of historical prices (unlike Bollinger Bands which assume a normal distribution).
27 April 2010
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29
DV Band Indicator and Percentile (DVBI/DVBP)
SPY - Daily 01/04/2010 Close 117.8 DV Bands(20,252,0.975, 0.5, 0.025) = 117.38
121.19 120.825 119.289
Type: Intermediate Mean Reversion
115.191
Baseline Strategy Long 0.90
Platforms Amibroker, Tradestation, Excel
Suggested Usage …
November 2010 SPY - DV Band Indicator(20,252) = 0.70
February
March
April
0.992032 0.9 0.5
Created with AmiBroker - adv anced charting and technical analy sis sof tware. http://www.amibroker.com
Description
“The Rescaled Bollinger Band”
This is the DV Band Indicator for DV Bands. For the Excel Plug-In this is the percentile rank of the H,L,C version of the z-score. The DVBP returns the price associated with a user-defined percentile and H,L,C range. Thus if you wanted to know what the price of the S&P500 would be at the 95th percentile based on the last 30 days of prices you would highlight the H,L,C range over the past “n” days and type in “95%.” In the case, with price data in a spreadsheet in descending order, you would type in as follows: =DVBP(C3:E32,95%)=$119.13 Both the DVBP and DVBI can be used as probability-based indicators, where the likelihood of exceeding the absolute extremes the next day is very low. In our testing the upper and lower DV Bands contained up to 95% of closes out of sample—that is, the chances of exceeding the upper or lower band or 97.5th and 2.5th percentiles were roughly equivalent to their promised probability (2.5+100-97.5=5% of values outside the range). This makes DV Bands a good tool for mean-reversion strategies and/or filtering for abnormal market conditions.
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30
Example 8: DV Bands Price Containment
Study The following table empirically tests the DV bands ability to ‘contain’ price, as compared to the original Bollinger Bands ability to contain price. It is clear from these results that DV Bands do in fact contain significantly more of a stock’s price movement than Bollinger Bands. For example, the original Bollinger Bands contain 82.4% of SPY prices (i.e. the close is within the bands), whereas DV Bands contain 89.6% of SPY prices. Bollinger Band DV Bands Ticker Bars Containment Containment Improvement SPY XLB XLE XLF XLI XLK XLP XLU XLV XLY
27 April 2010
4333 2843 2843 2843 2842 2843 2843 2843 2843 2843
82.4% 83.0% 82.7% 82.9% 81.9% 81.7% 83.1% 82.1% 82.3% 82.4%
89.6% 89.8% 90.1% 90.3% 89.8% 90.1% 89.6% 90.4% 89.9% 89.7%
7.2% 6.8% 7.4% 7.4% 8.0% 8.4% 6.5% 8.3% 7.6% 7.3%
DV Indicators | Copyright CSS Analytics Inc 2010 All Rights Reserved
31
DV Zones (DVZN) for Excel Plug-in Only Type: Environmental Filter Platforms Excel Only
Description
“Define Market Regimes Empirically”
This is one method of identifying regimes, in this case DV Zones are constructed using DVRAC- a trend filter that uses multiple smoothed regression slopes that are smoothed with a 30-day measurement periods, and DVPV which is the percentile rank of 30-day historical volatility. The following table shows the corresponding number codes and indicator values used to de-lineate the zones:
Regime up trend low volatility up trend high volatility no trend low volatility no trend high volatility down trend low volatility down trend high volatility
Zone Number 1 2 3 4 5 6
Trend (DVRAC) > 0.2 > 0.2 > -0.2, < 0.2 > -0.2, < 0.2 < - 0.2 < - 0.2
Volatility (DVPV) .5 .5 .5
DV Zones are excellent for developing comprehensive trading systems. They are static regimes that capture a broad spectrum of market conditions. You also may wish to shift a portfolio allocation to various systems dynamically based on the current zone position. The most common use of zones is to understand the performance of a given indicator within each zone, since they will be very different. It is instructive in some cases to consider longs separately from shorts. For example, in up trends with low volatility, shorting using a short-term indicator like the RSI2 or DV2 might not be desirable. The same may apply with going long in down trends with low volatility. As always taking a smaller position size is the least risky alternative if you have a good system to avoid missing out. The zone concept can be applied using other indicators as well such as the 200 day moving average. DV Zones allow the user to create trading systems for each market regime, as opposed to one system for all market regimes.
27 April 2010
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32
DV Super-Charged Percent Exposure (DVSE) SPY - Daily 14/04/2010 Close 121.19
121.19
Type: Short Term Mean Reversion Positing Sizing Platforms Amibroker, Tradestation, Excel Baseline Strategy Position Size = Normal Position Size * DVSE Exposure % Suggested Usage …
November December 2010 February SPY - DV Super Charged Pct Exposure(1,2,100,22) = 1.27
March
April 1.26666 1.1
0.2 Created with AmiBroker - adv anced charting and technical analy sis sof tware. http://www.amibroker.com
Description
“Determine exposure using the DVSC”
This is the DV Super-Charged DV2 percent exposure model that varies between 150% and -150% based on a simple algorithm. The DVSE increases exposure on both the long and short side at extremes, and normalizes its exposure positioning to keep size proportionate.
27 April 2010
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33
DV Bounded Percent Exposure (DVSE) SPY - Daily 14/04/2010 Close 121.19
121.19
Type: Short Term Mean Reversion Positing Sizing Platforms Amibroker, Tradestation, Excel Baseline Strategy Position Size = Normal Position Size * DVSE Exposure % Suggested Usage …
November December 2010 February SPY - DV Bounded Pct Exposure(0,2,100,22) = 1.29
March
April 1.2866 1.1
0.2 Created with AmiBroker - adv anced charting and technical analy sis sof tware. http://www.amibroker.com
Description
“Determine exposure using the DVB”
This is the DV2 percent exposure model that varies between 150% and -150% based on a simple algorithm. The DVSE increases exposure on both the long and short side at extremes, and normalizes its exposure positioning to keep size proportionate.
27 April 2010
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34
Daily Historical Volatility (DHV) SPY - Daily 14/04/2010 Close 121.19
Type: Environmental Filter Platforms Amibroker, Tradestation, Excel 121.19
2007 2008 SPY - Daily Historical Volatility = 8.59
2009
Suggested Usage …
2010
8.58655 Created with AmiBroker - adv anced charting and technical analy sis sof tware. http://www.amibroker.com
Description
“User Adjustable Historical Volatility”
This is the standard historical volatility calculation with a user defined measurement period. The default setting is 30 days. The calculation is the standard deviation of the natural logarithm of price changes over the period selected scaled to 1 year as defined by 252 trading days using the square root rule. It has been multiplied by 100 to make it comparable to the VIX. When the VIX is trading above this number it is bullish for the market and vice versa based on our historical research.
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35
DV Percentile Rank Volatility (DVPV) SPY - Daily 14/04/2010 Close 121.19
121.19
Type: Mean Reversion / Trend Filter Platforms Amibroker, Tradestation, Excel Baseline Strategy Mean Reversion environment when > 0.50, Trend environment when < 0.50 Suggested Usage …
N D 2009 M A M J J A SPY - DV Percent Rank Volatility(20, 252) = 5.98
S
O
N
D
2010
M
A
5.9761 Created with AmiBroker - adv anced charting and technical analy sis sof tware. http://www.amibroker.com
Description
“Normalised Historical Volatility”
This is the percentile rank of DVHV with a 30 day default setting and a 252 day look back for the normalization. The DVPV is an excellent tool for system filtering and testing as well as position sizing and portfolio allocation. Primarily it should be considered as a key measure to watch when deciding between mean-reversion and trend-strategies. It is also a key component of “zones” analysis (see DVZN).
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DV Composite Volatility (DVCV) SPY - Daily 14/04/2010 Close 121.19
Type: Mean Reversion / Trend Filter Platforms Amibroker, Tradestation, Excel 113.33
Baseline Strategy Mean Reversion environment when > 0.50, Trend environment when < 0.50 Suggested Usage …
J S O N D 2009 M SPY - DV CompositeVolatility(5, 252) = 0.62
A
M
J
J
A
S
O
N
D
2010
0.5 0.0398406 Created with AmiBroker - adv anced charting and technical analy sis sof tware. http://www.amibroker.com
Description
“A Composite Volatility Measure”
This is a composite volatility measure that includes ratio volatility , longer term historical volatility, and a measure of daily variation. It can be used as mean-reversion filter on its own or combined with DVPV. A rising DVCV over the past week or 5 days and a reading above the lowest quartile or .25 is more favorable for short-term mean-reversion on an absolute and risk-adjusted basis. Day-traders may also want to pay attention to the DVCV.
27 April 2010
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37
DV Breakout, Composite Volatility Plus, Composite Volatility Minus (DVBR/DVCP/DVCM) SPY - Daily 14/04/2010 Close 121.19
121.19
Type: Intermediate Mean Reversion Platforms Amibroker, Tradestation, Excel Baseline Strategy Long: >= 0.0, Short: < 0.0 Suggested Usage …
May Jun Jul Aug Sep SPY - DVCV(P+M)(10, 252) = 0.06
Oct
Nov
Dec
2010
Feb
Mar
Apr 0.0629482 0.00000
Created with AmiBroker - adv anced charting and technical analy sis sof tware. http://www.amibroker.com
Description
“The Anti-Thesis to the DV2”
All of these indicators are related- the DVCP and DVCM are the components of the DVBR which is a breakout indicator. Both the DVCP and DVCM measure short-term range expansions, with the DVCP (composite plus) making a positive range expansion from lower volatility and the DVCM (composite minus) making a downside or negative range expansion from lower volatility. The DVBR is a breakout indicator that is by default the 8day exponential moving average of the difference between DVCP and DVCM. The DVBR was highly profitable in the pre-mean reversion days on the S&P500 and recently made a resurgence during the rally. It is the anti-thesis to DV2 and many others, and tends to perform well on trendy stocks that have high LTR ratings such as in the Livermore index. It can also be used to screen/filter DV2 trades or any other mean-reversion trades or screen for trend entries along with DVRAC.
27 April 2010
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38
DV R-Squared Autocorrelation (DVRAC) SPY - Daily 14/04/2010 Close 121.19
121.19
Type: Intermediate Trend Filter Platforms Amibroker, Tradestation, Excel Baseline Strategy Long: >= 0.20, Short: < -0.20 Suggested Usage …
Aug Oct Nov Dec SPY - DV R-Squared AutoCorrelation = 0.81
2010
Feb
Mar
Apr 0.807997 0.00000
Created with AmiBroker - adv anced charting and technical analy sis sof tware. http://www.amibroker.com
Description
“The Premier Trend Filter”
This is the premier trend filter used within the 6 different regime “Zones” that reflected different combinations of trend and volatility. The DVRAC utilizes a slope-based R-squared correlation of prices that captures the Highs, Lows and Closes. Smoothing is applied to the indicator which minimizes false signals but also has the disadvantage of producing lag. DVRAC levels above .2 show a statistically significant positive trend which helps to provide a minimum criteria for placing buys to avoid false entries. Levels between -.2 and .2are indicative of temporary uncertainty in the trend condition, and this area is often called the “No-Trend” zone. Levels of the DVRAC below -.2 show a statistically significant intermediate down trend. This must be analyzed within the context of the long-term trend to consider going short.
27 April 2010
DV Indicators | Copyright CSS Analytics Inc 2010 All Rights Reserved
39
DV Differential Autocorrelation (DVDA) Type: Environmental Filter
SPY - Daily April 2010
Platforms Excel
Suggested Usage …
Feb 2010
Mar 2010
Apr 2010
SPY - DV Differential Autocorrelation 80 50 20
Description
“A Trend / Mean-Reversion Filter”
The differential autocorrelation indicator is a filter that detects shifts in the difference in autocorrelation between closing prices and high versus low prices. This is significant as a trend/mean-reversion filter since a strong trend will tend to have persistently higher closes but variation in highs and lows. Levels of DVDA well below .25 characterize short-term random drift in the market and indicator signals are less valuable in this area. In general, a falling DVDA over 1-5 days is a mean-reversion environmental signal. A rising DVDA signals favorable conditions for the prevailing trend.
27 April 2010
DV Indicators | Copyright CSS Analytics Inc 2010 All Rights Reserved
40
DV Composite Fractal Efficiency (DVFE) Type: Intermediate/Long Term Blend
SPY - Daily April 2010
Platforms Excel Baseline Strategy Long: >= 0.75, Short: < 0.25 Suggested Usage …
Feb 2010
Mar 2010
Apr 2010
SPY - DV Composite Fractal Efficiency 0.75
0.25
Description
“Measure Fractal Efficiency At Two Time Frames”
This is a composite mean-reversion and trend indicator that measures fractal efficiency at two different time frames. The DVFE assumes that meanreversion resides in the short-term and trends exist in the long term similar to the Aggregate M indicator. The signals are not highly correlated to the Agg M even though the default periods are nearly the same. This is because the DVFE is best traded at extremes of >.75 for longs and = 0.0, Short: < 0.0 Suggested Usage …
Aug Oct SPY - DV Trend = 5.67
Nov
Dec
2010
Feb
Mar
Apr 5.66667 4 -4
Created with AmiBroker - adv anced charting and technical analy sis sof tware. http://www.amibroker.com
Description
“A REMA Smoothed Momentum Measure”
The DV Smoothed Trend is a momentum measure that is smoothed twice using REMA or the rolling exponential moving average. The use of momentum/velocity assures that lag is minimized, and the use of double smoothing reduces the noise component. The DVST can be used as either a relative strength indicator, or a trend indicator.
27 April 2010
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DV Self-Adaptive Slow, DV Self-Adaptive Fast ( DVAS / DVAF ) Type: Adaptive Buy/Sell Levels Platforms Excel Suggested Usage …
Level 1 Adaptive
Description
“A Level 1 Self-Adaptive Overlay For Existing Indicators”
Both DVAS and DVAF are Level 1 class self-adapters that resample the prevailing distribution of the underlying to match with indicator signals to determine whether the best direction to trade an indicator is mean-reversion “MR” or trend “TR.” They can be applied with an indicator chosen by the user, but are best suited to shorter-term or intermediate term indicators. The self-adapter also determines the best levels to buy and sell using a given indicator by quickly adapting to the new distribution of returns for the underlying. The DVAS is less sensitive and tends to change more slowly while the DVAF rapidly adjusts to current conditions and potentially noise. There is a trade-off to using both and the best way is to use one in conjunction with the other.
27 April 2010
DV Indicators | Copyright CSS Analytics Inc 2010 All Rights Reserved
43
DV Self-Adaptive Slow, DV Self-Adaptive Fast ( DVAS / DVAF ) Type: Adaptive Buy/Sell Levels Platforms Excel Suggested Usage …
Level 1 Adaptive
Description
“A Level 1 Self-Adaptive Overlay For Existing Indicators”
Both DVAS and DVAF are Level 1 class self-adapters that resample the prevailing distribution of the underlying to match with indicator signals to determine whether the best direction to trade an indicator is mean-reversion “MR” or trend “TR.” They can be applied with an indicator chosen by the user, but are best suited to shorter-term or intermediate term indicators. The self-adapter also determines the best levels to buy and sell using a given indicator by quickly adapting to the new distribution of returns for the underlying. The DVAS is less sensitive and tends to change more slowly while the DVAF rapidly adjusts to current conditions and potentially noise. There is a trade-off to using both and the best way is to use one in conjunction with the other.
27 April 2010
DV Indicators | Copyright CSS Analytics Inc 2010 All Rights Reserved
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CSS Analytics Adaptor One (CSSA1) Type: Adaptive Buy/Sell Levels
SPY - Daily April 2010
Platforms Excel Baseline Strategy Long: >= 0.50, Short: < 0.50 Suggested Usage …
Feb 2010
Mar 2010
Apr 2010
SPY - CSS Analytics Adaptor One 0.5
Description
Level 1 Adaptive
“The First Institutional Class Adaptive DV Indicator”
This is the first institutional class entrant of the DV Indicators - it is a Level 1 Adaptive short-term mean-reversion indicator that looks at multiple time frames and different measures of volatility and fracticality. It dynamically self-adjusts to account for these factors to avoid making costly errors in buy/sell decisions. CSSA is more robust than the standard DV Indicators and works on a wider range of markets and stocks - especially entering at more extreme levels. It is a small preview of the future which will include Level 3 and Level 4 class that will have multiple layers of adaptation and self-adjustment. CSSA is the frame of a new class of indicators that will represent compact artificial intelligence machines.
27 April 2010
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Example Applications
27 April 2010
System A
DV SPY Swing System
System B
DV Combo System
DV Indicators | Copyright CSS Analytics Inc 2010 All Rights Reserved
46
System A: DV SPY Swing System Description
The DV SPY Swing System combines
[......... Rules Provided with subscription ................]
Long
Entry
Exit
Zone 1
Zone 2
Rising SMA200 and DVDS10 < 20
Falling SMA200 and DVDS10 < 20 and DVO Rules 80 DVO > 50 [......... Provided with subscription Short ................]Zone 2 Zone 1
Entry
none
Falling SMA200 and DVDS10 < 20
Exit
none
DVDS10 > 80
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DV SPY Swing System (Continued) Amibroker Code // ======================================================================================== // DV Indicators by David Varadi http://cssanalytics.wordpress.com/ // Copyright 2009-2010 David Varadi/ CSS Analytics, All Rights Reserved // For Personal Use by Registered Users Only; NOT for Redistribution; No Implied Warranties // ======================================================================================== SetFormulaName("System A - DV SPY Swing System"); SetBarsRequired(10000,10000); SetOption("CommissionMode", 3); SetOption("CommissionAmount", 0.00); SetOption("InitialEquity", 100000); SetOption("MaxOpenPositions", 1); SetOption("PriceBoundChecking", 1); SetOption("AllowPositionShrinking",True); SetTradeDelays( 0, 0, 0, 0); PositionScore = 1/C; PositionSize = -100; BuyPrice = SellPrice = ShortPrice = CoverPrice = Close; UpTrend = MA(C,200) > Ref(MA(C,200),-1); DownTrend = MA(C,200) 0.50); Sell = Exit1 OR Exit2; // Short Signals Short = DownTrend AND (DVO_indicator > 0.50); Cover = DVO_indicator < 0.50; NOTE: Results differ marginally between Amibroker and Excel because of different trade management techniques 27 April 2010
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System B: DV Combo System Description The DV Combo system combines short-term mean reversion, using the DVSC2, with a longer term composite trend and mean-reversion indicator, namely the AggZ. The benefit of this approach is that the system will stay long until both time-frames dictate that the position should be flipped – this reduces the number of trades thereby avoiding chop and the associated trading costs. This system is intended for the S&P500 spider, the “SPY”. For those not familiar with the AggZ, the calculation is dead simple: AggZ= (-1x( 10-day z-score)+(200-day z-score))/2, where z-score = (close-sma (closing prices over last n periods))/(standard deviation( closing prices over last n periods))
[......... Rules Provided with subscription ................]
Combo Score Calc > 0, add 1
AggZ < 0, minus 1 < 50, add 1
DVSC2[.........
Combo Score
Rules Provided with subscription ................] > 50, minus 1
System Rules Long
Short
Entry
Combo Score > 0
Combo Score 0,1,-1) + IIf(myDVSC 0; Sell = ComboScore = 0; NOTE: Results differ marginally between Amibroker and Excel because of different trade management techniques 27 April 2010
DV Indicators | Copyright CSS Analytics Inc 2010 All Rights Reserved
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Appendices
27 April 2010
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Appendix 1: Amibroker Code Example 1: DV2 v RSI2 // ======================================================================================== // DV Indicators by David Varadi http://cssanalytics.wordpress.com/ // Copyright 2009-2010 David Varadi/ CSS Analytics, All Rights Reserved // For Personal Use by Registered Users Only; NOT for Redistribution; No Implied Warranties // ======================================================================================== SetFormulaName("Example 1 - DV2 v RSI2"); SetBarsRequired(10000,10000); SetOption("CommissionMode", 3); SetOption("CommissionAmount", 0.00); SetOption("InitialEquity", 100000); SetOption("MaxOpenPositions", 1); SetOption("PriceBoundChecking", 1); SetOption("AllowPositionShrinking",True); SetTradeDelays( 0, 0, 0, 0); PositionScore = 1/C; PositionSize = -100; BuyPrice = SellPrice = ShortPrice = CoverPrice = Close; Value1 = Param("SystemToRun",1,1,2,1); if(Value1 == 1) { // RSI2 SYSTEM Buy = RSI(2) 50; Short = RSI(2) > 50; Cover = RSI(2) 0.50; Cover = myDVB 0; Cover = myDVU 0.50; Cover = myDVB 0.50; Cover = myDVO 0.50; Cover = myDVSC Custom Folder > DV Indicators Folder
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