//------------------------------------------------------------------------------
//
// Formula Name: Bollinger Band Gap
// Author/Uploader: klaushengher
// E-mail:
// Date/Time Added: 2003-06-15 12:43:31
// Origin:
// Keywords:
// Level: advanced
// Flags: exploration
// Formula URL: http://www.amibroker.com/library/formula.php?id=287
// Details URL: http://www.amibroker.com/library/detail.php?id=287
//
//------------------------------------------------------------------------------
//
// BbandGap - How to Make Money Shorting Stocks in Up and Down Markets
//
//------------------------------------------------------------------------------
/* BbandGap. Written by Klaus Hengher
based on Tools and Tactics for the Master Day Trader
Velez, Capra (Pristine)
BbandGap - How to Make Money Shorting Stocks in Up and Down Markets
The Set Up
1) The stock must first puncture and close outside (above) the upper Bollinger
Band. The closer the closing price is to the high of the day, the better.
And the bigger the day's advance, the better. As a general rule, you will
want this day's bar to be at least $2 or more in length from high to low.
This is not always necessary, but it's better to have it.
2) On the following day, the stock must 'gap' down below the prior day's close.
This 'gap down' is crucial as it serves as the most important criteria of
the entire strategy. If the stock does not open for trading below the prior
day's close by at least 50 cents (preferably more), no action should be
taken. We need weakness right at the open. Example: If on Tuesday the stock
closed at $40, we want to see the stock open for trading on Wednesday no
higher than $39.50. It must open down!
Note: In many cases, this gap down will be caused by either an exceptionally
weak market open or a negative news item on the company, such as a brokerage
downgrade.
But in either case, the gap down signifies major selling (profit taking),
and the pros who short will be loving it. Keep in mind that both the above
criteria must be met before action is taken.
The Action
Once the above Set Up Criteria is met, the trader will do the following:
1) Sell the stock short (at the market if you have the luxury of being able to
kill the trade instantly in the event the stock gets too far away from you).
With order entry systems like The Executioner(r), the trader will be able to
instantly cancel the open order, if need be. If the trader lacks this
'instant canceling' capability, he is better off placing a limit sell order.
2) Once the short has been filled, place a protective stop 1/8 above the high
of the prior day. This is our insurance policy against disaster. If the
stock rises above the high of the prior day, that is our sign that the
shorts are being squeezed, and the major advance has more steam left, as
those short will be forced to buy at higher prices to curtail their losses.
3) Hold for two to three days or more, protecting your profits on the way down
with some form of trailing stop methodology. Note: Some traders may want to
move their protective stop 1/8 above each prior day's high. This is called
'tracking the prior highs.' Others may want to 'book profits' in the
following manner: 'Once up $1, move stop to break-even. Once up $2, protect
1/2 of the gain, and once up $3 or more, protect 2/3 of the gain.
Note: The idea is to ride the short for maximum profits. But of course if
the trader is shorting a weak stock in the context of a bullish market
environment, booking the profits sooner rather than later is preferred, even
if it means missing additional gains.
}
*/
fClose = Ref(C,-1);
fHigh = Ref(H,-1);
fLow = Ref(L,-1);
fAdvDrop = fClose - Ref(C,-2);
fAtr = Ref(ATR(8),-1);
diffHl = fHigh-fLow;
fStoch = Ref(StochD(14),-1);
fBBandTop=Ref(BBandTop(C,20,2),-1);
fOpenCond = fClose - 0.5 * fAtr;
fOpen = Ref(O,0);
fStopLoss = fHigh + 0.5 * fAtr;
bbTopSell =
// The stock must first puncture and close outside (above) the upper Bollinger Band
IIf( fClose > fBBandTop AND
// The closer the closing price is to the high of the day, the better.
fClose > (fLow + 0.75 * diffHL ) AND
// And the bigger the day's advance, the better
fAdvDrop > (1.5 * fAtr) AND
// On the following day, the stock must 'gap' down below the prior day's close.
// This 'gap down' is crucial as it serves as the most important criteria of
// the entire strategy.
fOpen < fOpenCond AND
// Overbought condition added
fStoch > 80, 1, 0 );
/* Exploration Columns for Sorting */
NumColumns = 10;
Column0 = fOpen;
Column1 = fOpenCond;
Column2 = fStopLoss;
Column0Name = "Open";
Column1Name = "OpenCond";
Column2Name = "StopLoss";
Column0Format = 1.2;
Column1Format = 1.2;
Column2Format = 1.2;
Filter = bbTopSell == 1;
Buy = 0;
Sell = bbTopSell>0;
