Description
The Major Bear Market Aware strategy provides simulated buy and sell signals: it exits and avoids holding long positions in high-volatility bear market conditions. Developed by Markos Katsanos, this strategy examines market conditions based on a set of criteria that include historical and implied volatility, VIX readings, and values of such technical indicators as Average True Range (ATR) and Full Stochastic.
A simulated sell to close signal is added when all of the following is true:
- Over the last four weeks, the price has dropped by at least 6%.
- Both shorter-term and longer-term stochastic indicator values have risen over 85 in the last four weeks, and the longer-term stochastic is currently above or the same as the shorter-term one.
- The VIX has spiked more than 100% or ATR has risen by at least 200% in the last 15 weeks.
- The price is below its 20-week moving average.
- The volume is at least 180% of its 50-week moving average.
A simulated buy signal is added when all of the following is true:
- Over the last four weeks, the price has risen by at least 6%. The prior decline, however, is at least 15% (as calculated for the last 100 weeks).
- Both shorter-term and longer-term stochastic indicator values have fallen below 25 in the last four weeks and the longer-term stochastic is currently above or the same as the shorter-term one.
- The VIX has fallen by at least 30% or ATR has fallen by at least 60% in the last 15 weeks.
Note: The numbers mentioned in the signal descriptions are default and can be edited. The strategy is designed to be used on weekly charts; consider adjusting the numbers if you apply it to a non-weekly chart.
Input Parameters
| Parameter | Description |
|---|---|
atr length
|
The ATR length to be used in the calculations. |
stoch length1
|
The length of the faster stochastic. |
stoch length2
|
The length of the slower stochastic. |
atr pct chg buy
|
The minimum percent ATR drop (buy condition). |
atr pct chg sell
|
The minimum percent ATR increase (sell condition). |
vix pct chg buy
|
The minimum percent VIX drop (buy condition). |
vix pct chg sell
|
The minimum percent VIX increase (sell condition). |
price pct chg
|
The minimum percent price change (both buy and sell conditions). |
stoch oversold
|
The stochastic oversold level (buy condition). |
stoch overbought
|
The stochastic overbought level (sell condition). |
Further Reading
1. "Buy & Hold, Or Buy & Sell?" by Markos Katsanos. Technical Analysis of Stocks & Commodities, July 2021.
Backtesting is the evaluation of a particular trading strategy using historical data. Results presented are hypothetical, and there is no guarantee that the same strategy implemented today would produce similar results.
Technical analysis is not recommended as a sole means of investment research.
For educational purposes only. Not a recommendation of a specific security or investment strategy.