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:
- 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 (find it in the middle pane) that can show for any selected symbol. Use the guide below to import that in to your charts: https://drive.google.com/file/d/0Bx48Du_...
// // @author LazyBear // If you use this code in its orignal/modified form, do drop me a note. // study("Kaufman Stress Indicator [LazyBear]", shorttitle="KSI_LB") length=input(60) oblvl=input(90,title="Overbought Level") oslvl=input(10,title="Oversold Level") normlvl=input(50,title="Normal Level") d2sym=input("SPY", type=symbol) calc_range(hi, lo, len) => highest( hi, len ) - lowest( lo, len ) d2low=security(d2sym, period, low) d2high=security(d2sym, period, high) d2close=security(d2sym, period, close) r1 = calc_range(high, low, length) r2 = calc_range(d2high, d2low, length) s1 = (r1 != 0 and r2 != 0) ? ( close - lowest( low, length ) ) / r1 : 50 s2 = (r1 != 0 and r2 != 0) ? ( d2close - lowest( d2low, length ) ) / r2 : 50 d = s1 - s2 r11 = calc_range(d, d, length) sv = r11 != 0 ? 100 * ( d - lowest( d, length ) ) / r11 : 50 plot( sv, title="Stress", color=red, linewidth=2 ) plot( s1 * 100, title="D1 Stoch", color=green ) plot( s2 * 100, title="D2 Stoch", color=blue ) plot( oblvl, title="OverBought", style=3, color=red ) plot( oslvl, title="OverSold", color=green, style=3 ) plot( normlvl, title="Normal", color=gray, style=3 )