This long-term indicator has flashed a warning signal. A lower close tomorrow may take the warning signal off the board. A higher close will trigger the closing of the open long position and the opening of a short position.
A long entry is triggered at the close on the second day the blue line closes above the red line. A short signal is triggered on the second day the red line closes above the blue line. The red and green arrows show the short and long entries.
The indicator is not designed for short-term swing trading, although it made a few attempts at that early in 2012. It is designed to catch long trends.
To illustrate how it catches trends and quickly abandons a position if it doesn’t trend, consider these statistics:
Trading SPY, the ROC system has generated a compound annual return of 11.18% with a maximum system drawdown of -20.27%. Buying and holding SPY during the same time period (all SPY history) has generated a compound annual return of 5.89% with a maximum drawdown of -56.45%.
Read just about everything else I’ve written about this indicator here.
Hi Wood,
One feature of this system is the ability to look ahead: from 5/24/11 to 5/31/11, SPX rose about 2.2% (which is negative for the blue line over the next few days), but then took a 6% drop to 6/24/11 (positive for blue line). A little arithmetic with daily standard deviation, and you a way to numerically estimate the probabilities of a whipsaw.
Keep up the great work!