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It is worth noting that buying a call option with a delta of 25, which should be ITM only about 25% of the time, showed profit 66% of the time. This gives us a real edge.
So, by using the indicator, you can time your trades and increase your probability of profits and sharpen your edge.
Moving Average Rank indicator (MA)
The Moving Average (MA) is a very useful technical indicator designed to measure a financial asset's price movement and trend. We have three filters built on this indicator, and in this article, we will describe the RANK filter. We suggest reading the other KB articles to learn more about the other filters that are more common.
The MA Rank filter is a unique filter that gives you an edge in trading. It is calculated using a percentile over the last year on the distance of the stock from the moving average. This unique calculation turns the indicator into a mean revision indicator that signals a reversal.
The MA Rank filter is a unique filter that gives you an edge in trading. It is calculated using a percentile over the last year on the distance of the stock from the moving average. This unique calculation turns the indicator into a mean revision indicator that signals a reversal.
(In the picture above we can see the SPY (blue in top pane) and the MA 50 (orange). In the bottom pane, we can see the percentile of the distance of SPY from the MA 50. As we can see it is mean-reverting and might help us time our positions.)
Why Use the indicator
In our blog post, we have published research we've done on overextended stocks as measured by MA rank. In that research, we managed to show that for bullish trades, there is a positive expectancy for trading both long calls and short puts.
It is worth noting that buying a call option with a delta of 25, which should be ITM only about 25% of the time, showed profit 66% of the time. This gives us a real edge.
So, by using the indicator, you can time your trades and increase your probability of profits and sharpen your edge.
How to use the MA Rank indicator in SamurAI
The MA rank indicator is a mean-reverting indicator that ranges from 0 to 100. The higher the value, the more overbought the stock is, and the higher the probability it will correct. The lower the value, the more oversold the stock is, and the higher the likelihood it will increase in value.
The most common settings are: value above 80 is overbought, and value below 20 is oversold.
The most common settings are: value above 80 is overbought, and value below 20 is oversold.
Settings
- Length: in days. During the market hours, we will simulate the last price as the closing price for that day to show you how the MA changes during market hours.
- From: and To: - These are the filters to initiate the zone you want the RSI to be. The most common zones are: Oversold(To: 20) and Overbought (From: 80).
- Min Periods inside/outside range: How long the stock was above or below the MA.
- You can replace the 'inside' and 'outside' the range filters by clicking on the word.
- The number is in days - how many days you want the stock to be above or below.
This is useful for:- Cross: Set it as min periods outside to 1.
- Breadth: Set it as min period inside for 20, for example (About one month).
- See more common use cases below.
Common use cases
- Oversold - 1) periods 200 (default), (2) from:0 to:20 (3) Min. periods in range: 0 (default)
- Overbought- 1) periods 200 (default), (2) from:80 to:100 (3) Min. periods in range: 0 (default)
- Exited Oversold Zone - 1) periods 200 (default), (2) from:20 to:100 (3) Min. periods outside range: 1
- Exited Overbought Zone - 1) periods 200 (default), (2) from:0 to:80 (3) Min. periods outside range: 1
- In Oversold for a Month - 1) periods 200 (default), (2) from:0 to:20 (3) Min. periods in range: 21
Switching between Simple and Exponential Moving Average
There are many ways to calculate the moving average formula. We support the two most popular calculation methods:
- Simple - This gives the same weight to each value in the time range.
- Exponential - This calculation gives higher weight to the most recent values, making the indicator moves faster.
To switch between the calculations, change the drop-down menu at the top of the filter.
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