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Market Dissector

Advance/Decline Breadth Indicator Signals Buy

The Market Dissector A/D indicator (just barely) issued a buy signal for tomorrow.

The decliners barely closed above the upper Bollinger Band. The signal to close the long position will issue when the decliners closes beneath the lower Bollinger Band.

This indicator has a high win rate.

Note that the Bollinger Bands allow the indicator to adjust to low and high volatility (we are currently in a lower volatility environment).

Stay tuned for more on this indicator…

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Market Dissector A/D Breadth Indicator

Every product needs a good name. Branding, you know. Hence, the Market Dissector™.

I wrote a good bit about these breadth indicators a while ago, and then stopped. Nothing like some real-time performance to bolster the confidence derived from some promising backtests. I will be dusting them off over the next few weeks, making some refinements, and again making them a regular feature on the blog.

Below is one of the indicators- a very simple short-term breadth measure of advancers and decliners. It buys when the decliners surpass the upper Bollinger Band and sells when the decliners fall beneath the lower Bollinger Band.

With a 70% win rate, it works great for timing the SPY. Used to trade the QQQQ, win rate is 65% and is 67.5% for IWM.

Since I coded it and started tracking the signals in March 2o10, it has netted 9.25% (with commissions) and maintained a win rate of 68.75%, with buys and sells at the close. Results improve if we delay our buys until the next open. Not bad for in-sample testing.

Here is what it looks like in action:

Green arrows are the buys; red arrows are the sells.

One element of these indicators that I want to emphasize is that they are generated with de-listed stock data. An advance/decline index that does not incorporate de-listed data may suffer from survivorship bias.

Look for the buy alerts from this indicator in the future.

If you want to incorporate delisted data into your backtests, I have found  Norgate PremiumData to have the best price and an outstanding service.

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