Kaufman Stress Indicator

21 cze 2014

Stress Indicator, first proposed by Mr. Perry Kaufman, provides an easy way for trading pairs / arbs.

Kaufman's trading rules for Stress Indicator:
- Decide on a pair to trade: For ex., AAPL v QQQ
- Calculate the Stress Indicator (SI) for that pair
- Buy the stock when SI 50
- Calculate the 60-day moving average of QQQ
- If the trend of QQQ is down, hedge the stock position with QQQ equal to the risk of the stock using the 20-day ATR of each
- Exit the hedge when the stock position exits, or exit the hedge when the trend of QQQ turns up
- Do not trade stocks under $3

Explanation of all potential SI applications is beyond this post. For more info:
- ptasite.s3.amazonaws.com/videos/StockTimingUsingPairsLogic.pdf
- futuresmag.com/2008/12/15/crossover-relative-value-trading
- kaufmansignals.com/timing/
- TASC 2014 March issue.

Though Kaufman's Stress stategy is built on top of this Stress Indicator, I suggest reading up his full strategy guidelines before applying this.

Kaufman suggests using 60SMA on the index to track the slope. I have included a custom SMA (find it in the middle pane) that can show SMA for any selected symbol. Use the guide below to import that in to your charts: drive.google.com/file/d/0Bx48Du_2aPFncUhIemNrZUY1dTA/edit?usp=sharing