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January 2010 Stocks and Commodities Traders Tips


The Vortex Indicator :

AIQ Version:

Original article by Etienne Botes and Douglas Siepman
AIQ Code by Richard Denning

The AIQ code for the Vortex Indicator (VI) from the article, “The Vortex Indicator” by Etienne Botes & Douglas Siepman, is shown below. The coded version that I have supplied also includes a system that can be used to test the indicator. The system only uses the VI (or DMI) indicator. To test the indicator in comparison to the original DMI indicator from Wells Wilder I devised a simple system based on crossovers on the VI (or DMI) indicator. The rules for this long only system are to go long when the VI (or DMI) increases from below zero to above zero. The long positions are then exited when the VI (or DMI) decreases from above zero to below zero. I used the Portfolio Manager module to simulate trading a portfolio of stocks from the NASDAQ 100. I set the capitalization rules to invest 10% into each stock taking no more than 3 new trades per day with up to 10 open positions at one time. When there were more than 3 signals per day, the ones with the highest VIplus (or DMIplus) values were chosen. All trades were simulated as placed next day market on open.

In Figure 1, I show a comparison of two bull market periods, March 2009 through November 2009 and also January 2002 through October 2007. The red line is the equity curve from the original Wilder DMI system while the blue line is the VI system. Clearly the original DMI indicator was the better performer during these two bull market periods. In Figure 2, I show a comparison of two bear market periods, October 2007 to March 2009 and also March 2000 to December 2002. Again the red line is the equity curve from the original Wilder DMI system while the blue line is the VI system. In these two bear periods, the VI system shows a slight outperformance compared to the original Wilder DMI indicator. Based on this test, I would continue to use the original DMI indicators.

Figure 1 Caption: Comparison of VI system equity curve (BLUE line) to DMI system equity curve (RED line) during two bull market periods trading long only using the NASDAQ 100 list of stocks.

Figure 2 Caption: Comparison of VI system equity curve (BLUE line) to DMI system equity curve (RED line) during two bear market periods trading long only using the NASDAQ 100 list of stocks.

EDS Code for Vortex Indicator:
Vortex.EDS
(right click and choose Save As)



Traders Studio Version :

Original article by Etienne Botes and Douglas Siepman
Traders Studio Code by Richard Denning

The TradersStudio code for the Vortex indicator (VI), function and system, from the article, “The Vortex Indicator” by Etienne Botes & Douglas Siepman, is shown below. The coded version that I have supplied also includes a system that can be used to test the indicator. The system only uses the VI (or DMI) indicator. The system I set up to test the indicator in comparison to the original DMI indicator from Wells Wilder is based on crossovers on the VI (or DMI) indicator. The rules for the system are:
1) Go long when the VI (or DMI) goes from less than zero to greater than zero.
2) Go short when the VI (or DMI) goes from above zero to less than zero.
3) All trades are placed next day market on open.

The system is always in the market either long or short. To test the indicator, I created a portfolio of 38 of the more actively traded, full sized, futures contracts. I used Pinnacle back-adjusted data (day session only) for the following symbols: AD, BO, BP, C, CC, CD, CL, CT, DJ, DX, ED, FA, FC, FX, GC, HG, HO, HU, JO, JY, KC, KW, LC, LH, NG, NK, PB, RB, S, SB, SF, SI, SM, SP, TA, TD, UA, W.

The comparative test of the indicator versus the original Wells Wilder DMI indicator is shown on a year by year basis in Table 1. The test runs from 1978 to November 6, 2009. The years and metrics where the VI outperformed the DMI indicator are highlighted in light green. Over the entire test period and also within the last 10 years the VI indicator shows a better performance than Wilders original DMI indicator when tested on this portfolio of futures markets with the 14 day parameter.

I also ran a comparative test using 101 NASDAQ stocks over the period 1992 to 8/14/2009. These stocks were chosen based on high liquidity and high volatility and have similar characteristics to the stocks in the NASDAQ 100 index. Using this list of NASDAQ stocks showed the opposite results from the futures test in that the DMI indicator showed more profit and a higher mean to standard deviation ratio than the VI indicator. The stocks test is shown in Table 2. These contradictory results indicate that further tests should be run before deciding which version of the indicator to use.

Table 1: A year by year comparison of the VI indicator versus the DMI indicator on a portfolio of 38 futures contracts trading one contract per trade. Light green shaded areas highlight which indicator had the better performance.

Table 2: A year by year comparison of the VI indicator versus the DMI indicator on a portfolio of 101 high liquidity NASDAQ stocks trading 100 shares per trade. Light green shaded areas highlight which indicator had the better performance.

Traders Studio Code for Vortex Indicator:
VORTEX_SYSTEM.zip
(right click and choose Save As)

 

 

 

 

 

 

 

 

 

 

 

 

 

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