Weekly long-only trend rules with a gated retracement exit

A long-only weekly stance

The procedure is specified as long-only trend-following on weekly bars. It stays in the market during authoritative rising action and stands aside in cash during unsure sideways or falling action.

Entry and exit are specified as different devices. The entry is a selective breakout meant to catch only strong advances. The exit is adaptive: it is meant to let strong advances run while closing the position in uncertain conditions.

The entry-pattern

A new high of a short lookback is accepted only when that window's lowest low is also above the lowest low of a longer lookback. The longer window is larger than the shorter one, in order to reduce range signals and suppress signals in falling markets.

Those two lookbacks are set at five weekly bars and thirteen weekly bars. The written entry-pattern is a latest weekly bar that is the five-bar high, accepted only when the five-bar low is above the thirteen-bar low.

A comparable retracement exit

The retracement-exit measures the gap between the latest low and the highest low of the last thirteen bars, then divides that gap by the latest low. The retracement can then be stated as a percentage that is comparable across price levels.

When the trend-filter silences the exit

Trend intensity is measured as the range of the last five values of a 26-bar moving average. Dividing that range by the last close and multiplying by 100 makes the same filter comparable across markets. That longer-period average of weekly prices is the moving-average used here.

A tight retracement exit is left on when that intensity measure is below 1.2 and turned off when the measure is above 1.2, so brief pullbacks during a strong climb are less likely to close the position. That on-or-off threshold is the trend-filter.

The written rule set

The written rule set is: enter long when the latest weekly bar is the five-bar high and the five-bar low is above the thirteen-bar low; exit when the latest low is more than one half of 1 percent below the thirteen-bar highest low and the five-bar range of a 26-bar moving average is below 1.2.

How the settings were varied

Three entry settings were chosen as midpoints from other procedures, while only the two exit settings were varied on a five-by-five grid, producing twenty-five trials.

The historical check used 500 weekly bars from April 1982 through November 1991, took fills on the next bar's open, and omitted interest and commission to simplify the procedure.