Evaluation of a Stochastic Oscillator Equity Trading Method

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Evaluation of a Stochastic Oscillator Equity
Trading Method
27 February 2003

• CamShaft Investors
• Ashvin Chandhok
• Sohit Khurana
• Pete Nolan
• Chris Rieger

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Stochastic OscillatorAssumptions

• Upward/downward moving stocks tend to close near
  the highs/lows of their trading ranges
• As the trend matures, stocks close further off
  their highs/lows

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Oscillator Parameters
CL closetoday lowest lowin K
periods HL Highest High in K Periods -
Lowest Low in K Periods K CL / HL D
fast moving average of K   D slow
moving average of D fast Monitor D for
buy/sell signals
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Illustration (SP500)
BUY when cross above lower limit SELL when
cross below upper limit
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Optimization Forecast

• Maximize return over test period (1965-1997)
• K period
• D1 period
• D2 period
• Upper/Lower thresholds
• Apply parameters and forecast out-of-sample
  (1998-2003)

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Building on this?

• Need non-Excel platform for optimization
• Use both fast slow D?
• Combine with other technical indicators?