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# When XLP Diverges From Recent High And Low: A Close To Close Strategy

April 16, 2013 | Posted by Oddmund Grotte under strategies |

A while back I wrote about a daytrading strategy in SPY. This one works pretty well on XLP as well, with some modifications:

- Calculate a 25 day average of the (High minus Low). That is the “ATR”.
- Calculate the Low of the last 10 days.
- Calculate the (C-L)/(H-L) ratio every day (IBS).
- Calculate a band 2.5 times above the 10 day low using the average from point number 1 (ATR).
- If XLP closes above the band in number 4, and point 3 has a higher value than 0.8, then go short at the close.
- Exit on tomorrows close.

Vice versa for long except the value in number 3 must be below 0.33.

Test period from 2005 until 2013. Here is the results:

Long:

Total % | #Fills | #Wins | Average | |||

53.57363 | 161 | 106 | 0.333 |

Profit curve:

Short:

Total P/L | #Fills | #Wins | Average | |

49.03834 | 237 | 141 | 0.207 |

Equity curve:

By the way, this strategy has been horrible in 2013 on the short side (live trading).

Question: In your formula point #4:

Calculate a band 2.5 times above the 10 day low using the average from point number 1 (ATR).

Is the actual calculation of the Upper Band as follows:

(pseudo code)

UpperBand = 2.5 * LowestLow (past 10 days) + Moving Average(H+L, 25)

I am having some difficulty in reproducing your results on XLP, and it would be greatly appreciated if you could just clarify that one point.

Thanks in advance.

Hi,this is correct formula:

UpperBand = LowestLow (past 10 days) + ( 2.5 * Moving Average(H+L, 25) )