DV2 an alternative way to measure short term momentum

DV2 is an indicator by David Varadi at https://cssanalytics.wordpress.com/

The indicator is similar to the popular RSI2 strategy from Larry Connors

The core idea is similar but the measurement and calculation differ.

RSI2 measures the speed and direction of price change over 2 period.

DV2 measures the bar strength over 2 period.

DV = (close / ((high + low) / 2)) -1

DV2 = (DV[0] + DV[1]) / 2

DV2_Bounded = (DV2 - DV_MIN) / (DV_MAX - DV_MIN)

The DV represents bar strength by calculating the closing price deviation from the bar midpoint. A 2 day average is then taken as the result and then bounded to give a percentage rank.

Using a lookback window of 252 days

Buy at the close when DV2_Bounded > 0.50

Sell at the close when DV2_Bounded < 0.50

The strategy only sells to cash. It does not go short.

Starting Equity 100k

Ending Equity 748k

Compounded Annual Return 10.7%

Sharpe Ratio 0.472

Total Order 1116

Average Win 1.46%

Average Loss -1.68%

Drawdown -28.5%

Buy and Hold Equity Curve

The DV2 has better drawdown metrics compared to buy and hold but not as good as RSI2.