Thursday, February 26, 2009

Qs and %B

This is a little closer look at the %B function referred to in yesterday's post. Just to get a sense of the type of signals the %B might generate I've lined it up with the RSI2 for comparison purposes. And I've added the overlay of the 8 and 16 MAs to examine the relative performance of those cross signals.
What I'd like to do is convert that %B reading of .5 to a zero line for my purposes of analyzing mean reversion and, as this data is integrated into Tradestation code for backtesting, that will provide the basis for strategy performance. Just another task on my overflowing "to do" list.
Here's another look at the same Qs chart, but this time viewed as a Qs/VIX ratio. While the charts don't display any major differences, the buffering of the VIX does smooth out the %B line a bit. The correlation between the RSI2 and %B12 is pronounced, but it's interesting (to me) how the %B tends to keep you on the right side of the trade relative to the chop in the RSI2. This may be a product of the period settings (2 vs 12) and I intend to delve into this issue in future posts.

Finally, here's an interesting little article from Trading Markets on the benefit of mean reversion trades (in this case using options).

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