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Glitch Index:
Source of this on is February 2004, Active Trader magazine.
System concept
This system was inspired by the more successful stock systems that have appeared in the Trading System Lab. These strategies share a common timing technique - they attempt to take advantage of minor extreme price movements.
This system detects when price has deviated significantly from its norm by measuring how far it moves above and below a "detrended" Simple Moving Average (SMA). The resulting indicator is called the "Glitch Index," which represents the percentage move price has made above or below the detrended SMA. The theory is price will move back to its norm, and we can profit by taking advantage of the temporary deviation.
The formula for calculating the Glitch Index is:
where:
Diff = Closing Price - SMAMult
RocSMA = Rate of Change(SMA) * 0.1 + 1
SMAMult = SMA* RocSMA
The system buys when the Glitch Index goes below -2 and sells when it swings back up above +2. However, the system will not enter a long trade if the highest Glitch Index value within a 30-bar period is greater than 5. This prevents the system from entering when prices snap back from an extremely overbought level, such as a blow-off at the top of a strong bull rally.
The color of the Glitch Index (GI) indicator bars helps illustrate what the system is doing.
The system does not sell short.
Entry
Exit
Money management
PS: the system is designed for daily and weekly time frames. For lower time frames the levels have to be adjusted.
Author: Mladen Rakic