AFL Strategy for Chande Momentum Oscillator
Step 1: The Trading Idea
Buy when momentum is strong with the recent high/low as stoploss
Step 2: Selecting Indicators for CMO Strategy
In the book “The New Technical Trader”, Tushar Chande introduced the Chande Momentum Oscillator (CMO). It is a momentum indicator very similar to RSI and Stochastics indicator. However it differs from them in its construction that the Up and Down days are used in both numerator and denominator.
The overbought and oversold levels in CMO as suggested by Tushar Chande are +50 and -50. We use these levels similar to the RSI AFL Trading System. We Buy when CMO crosses above +50 using the recent high of last 5 candles as stop loss. The default period of 20 is used for CMO.
Step 3: Defining Clear Strategy Rules for Chande Momentum Oscillator Strategy
Buy: When CMO crosses above +50
Sell: When recent low of last 5 candles is breached
Step 4: AFL Coding Guide
The AFL uses looping on all bars to generate buy sell signals. This is because the entries and exit conditions are different but occur too frequently. Using flags in the loop help to confirm:
The proper cycle of Buy, Sell, Short and Cover signals is maintained
There are no consecutive buy or sell signals
Step 5: The Backtest
The strategy shows amazing profits when tested using the default. It generates a significant profit of 7195 points, or Rs. 5,39,625/ over two years on one lot (75 shares). The winner% is just 32%, which is very low. However, the average win/loss ratio is 59 points, which is very good. This indicates that this strategy is able to capture entire trending movement, even though it gets stopped our in sideways market.
Related Article: Basics in Strategy Backtesting
- Scrip: Bank Nifty current month futures, 15-minute
- All trades executed at Close price of the bar on which signal is triggered
- Brokerage: 0.01% of Trade Value
- Data History: 01-01-2014 to 31-12-2015 (two years)
- Strategy Optimization: None
Step 6: Further Improvement
We leave it to the readers to suggest any improvement in Step 2 and Step 3 which can increase the profitability. We can introduce custom stoploss as well as profit targets
to further maximize the profitability.
Download here AFL for CMO Strategy
Click here to download AFL Strategy for Chande Momentum Oscillator
Click here to download AFL Indicator for Chande Momentum Oscillator
Click here for Amazon link to buy the book The New Technical Trader
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