How Changing Just One Setting Increased this Indicator’s Win Rate from 31% to 68%

Today I'm going to give you a very special sneak peak inside our new technical analysis backtesting report called SIGNALS. Using backtest results, we show how changing just one setting increased a win rate by more than double.

How Changing Just One Setting Increased this Indicator’s Win Rate from 31% to 68%
Kirk Du Plessis
Jan 20, 2016

Specifically, we're going to look at how the Absolute Price Oscillator performed over the course of 20 years, testing 223 different stocks and the subsequent signals generated from those trades. What's the point of telling you all this? There's no hiding that this is meant to be a little bit of a teaser for you because I think everyone could benefit from reading it.

But even if you don't buy a copy of SIGNALS then this 1 tip we're going to cover today will help you think more strategically about how you trade in the future.

What is The Absolute Price Oscillator (APO)?

The Absolute Price Oscillator displays the difference between two exponential moving averages of a security's price and is expressed as an absolute value. It rates the trends strength in relation to the moving between the two moving averages with short-term momentum being the catalyst. The most popular setups are to use the 14-day and 30-day EMAs, respectively.

All signals are generated by the signal line crossing above zero-level which is considered bullish while crossing below zero-level is deemed bearish. As short-term momentum increases or decreases and eclipses long-term momentum the signal is generated. As is common with most oscillators, divergence in the stock price and indicator can also alert investors to early turnarounds.

As part of our research, we ended up testing more than 16 different variations of APO, the first 16 of which are visible in the image below taken from page 214 of the Appendix. You'll notice that simply changing the shorter or faster moving EMA from 10 to 20 (and keeping the slower EMA the same at 26) resulted in the win rate more than doubling over the testing period.

What's more interesting about this is that the overall net profit dropped significantly from 21.87% to just 6.30%. We often found this in the course of testing other indicators and variations as well.

So even though you won on a trade twice as often, when you did win with the 2nd settings noted (APO 20,26) you often had very small winners that never really gave you a definitive advantage long-term.

As far as predictability goes, the Absolute Price Oscillator was fairly accurate with tests #14-16 on this page but the overall profitability was dramatically less.

Pick up your copy of SIGNALS today and finally see which technical analysis indicators you should be using. If you have any questions at all please add them in the comment section below and I'll make sure to personally respond to each and every one of them this week.

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