Aroon Indicator Crossover | Trading Strategy (Setup & Exit)

Posted on 2012/09 by R&D

I. Trading Strategy

Developer: Tushar Chande. Concept: Trading strategy based on an oscillator. Research Goal: Performance verification of the Aroon Indicator Crossover. Specification: Table 1. Results: Figure 1-2. Trade Setup: “AroonUp” measures the strength of the uptrend; “AroonDown” measures the strength of the downtrend. Long Trades: AroonUp[i − 1] crosses above AroonDown[i − 1]. Short Trades: AroonDown[i − 1] crosses above AroonUp[i − 1]. Index: i ~ Current Bar. Trade Entry: Long Trades: A buy at the open is placed after a bullish setup. Short Trades: A sell at the open is placed after a bearish setup. Trade Exit: Table 1. Portfolio: 42 futures markets from four major market sectors (commodities, currencies, interest rates, and equity indexes). Data: 32 years since 1980. Testing Platform: MATLAB®.

II. Sensitivity Test

All 3-D charts are followed by 2-D contour charts for Profit Factor, Sharpe Ratio, Ulcer Performance Index, CAGR, Maximum Drawdown, Percent Profitable Trades, and Avg. Win / Avg. Loss Ratio. The final picture shows sensitivity of Equity Curve.

Tested Variables: Aroon_Index & Time_Index (Definitions: Table 1):


Figure 1 | Portfolio Performance (Inputs: Table 1; Commission & Slippage: $0).

STRATEGY
SPECIFICATION PARAMETERS
Auxiliary Variables: “AroonUp” measures the strength of the uptrend. “AroonDown” measures the strength of the downtrend. The Aroon Indicator defines the time it is taking for the price to reach the highest and lowest points over a given time period, each reported as a percentage of total time.
Aroon_Index = Look back period.
AroonUp = 100 * (Aroon_Index − (# of periods since highest high in “Aroon_Index + 1” periods)) / Aroon_Index.
AroonDown = 100 * (Aroon_Index − (# of periods since lowest low in “Aroon_Index + 1” periods)) / Aroon_Index.
Aroon_Index = [10, 200], Step = 5;
(Default value: Aroon_Index = 25)
Setup: Long Trades: AroonUp[i − 1] crosses above AroonDown[i − 1].
Short Trades: AroonDown[i − 1] crosses above AroonUp[i − 1].
Index: i ~ Current Bar.

Filter: N/A
Entry: Long Trades: A buy at the open is placed after a bullish Setup.
Short Trades: A sell at the open is placed after a bearish Setup.
Exit: Time Exit: nth day at the close, n = Time_Index.
Stop Loss Exit: ATR(ATR_Length) is the Average True Range over a period of ATR_Length. ATR_Stop is a multiple of ATR(ATR_Length). Long Trades: A sell stop is placed at [Entry − ATR(ATR_Length) * ATR_Stop]. Short Trades: A buy stop is placed at [Entry + ATR(ATR_Length) * ATR_Stop].
Time_Index = [1, 40], Step = 1;
ATR_Length = 20;
ATR_Stop = 6;
Sensitivity Test: Aroon_Index = [10, 200], Step = 5
Time_Index = [1, 40], Step = 1
Position Sizing: Initial_Capital = $1,000,000
Fixed_Fractional = 1%
Portfolio = 42 US Futures
ATR_Stop = 6 (ATR ~ Average True Range)
ATR_Length = 20
Data: 42 futures markets; 32 years (1980/01/01−2011/12/31)

Table 1 | Specification: Trading Strategy.

III. Sensitivity Test with Commission & Slippage

Tested Variables: Aroon_Index & Time_Index (Definitions: Table 1):


Figure 2 | Portfolio Performance (Inputs: Table 1; Commission & Slippage: $100 Round Turn).

IV. Rating: Aroon Indicator Crossover | Trading Strategy

A/B/C/D

Related Entries: Aroon Indicator Breakout (Setup) | Aroon Indicator Breakout (Setup 1 & Exit) | Aroon Indicator Breakout (Setup 2 & Exit) | Combined Donchian Channels (Entry & Exit)
Related Topics: (Public) Trading Strategies
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CFTC RULE 4.41: HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

RISK DISCLOSURE: U.S. GOVERNMENT REQUIRED DISCLAIMER | CFTC RULE 4.41

Codes: matlab/aroon/crossover/