A three-gate checklist for longs after a sharp drop

What the archive defined

A golden-cross was a bull regime defined as the 50-day moving average remaining above the 200-day moving average. A death-cross was a bear regime defined as the 50-day moving average remaining below the 200-day moving average.

A sharp-drop was a close 5% or more below the 50-day moving average. Range-contraction was a session whose high-low span was smaller than the prior session. Volume-contraction was a session whose volume was smaller than the prior session. A dynamic-ma-exit ended the long when price closed back above the 10-day moving average.

The first long rule

The first long rule used the S&P 500 index from 1990 and a 100000 stake. It entered after a 5% or greater close below the 50-day and 10-day moving averages, and it exited after 10 days.

Editorial reading: the earliest written long already paired the sharp-drop distance with the 10-day average, but it still released the trade on a 10-day calendar.

Confirm the 50-day versus 200-day regime

After comparing golden-cross and death-cross samples, later tests were limited to sharp drops that occurred while the 50-day average stayed above the 200-day average.

Editorial reading: this is the first gate. In the later workflow a death-cross keeps the long off.

Release with a short average, not a calendar

Fixed exits after 5, 10, 15, and 20 days were compared with an exit on a close above the 10-day moving average. That moving-average exit was kept for later filters.

Editorial reading: the later workflow ends the long with a dynamic-ma-exit rather than with a preset number of sessions.

Wait for range or volume to contract

Under the golden-cross and 5% oversold conditions, entries were split by whether that day's high-low range was larger or smaller than the prior day's range. The same split was applied to daily volume.

The combined procedure allowed an entry when either volume or range contracted so the trade count would not collapse. Editorial reading: this is the third gate. The long stays off while both range and volume are still expanding.

How the August 2015 walkthrough applied the gates

In the August 2015 walkthrough the buy stayed off while the close was already more than 5% below the 50-day average but volume and range were still rising. On 25 August both contracted, and the buy turned on.

That walkthrough entered at the 25 August 2015 close of 1867.61 and exited on 3 September 2015 at 1951.13 under the close-above-the-10-day-average rule.

Editorial reading: the third gate delayed the long until contraction printed, and the dynamic-ma-exit, not a 10-day calendar, closed the trade.