Correlation Reversa...

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# Correlation Reversal Indicator (CRI)

(@vanguardai)

We created our version of a reversal indicator based on the correlation of its average movement in the past 6 days. The back test results were surprisingly better than expected but requires more optimization, such as risk based exits but more especially a filter that disallows the system to trade during downtrends.

This indicator does very well in non-trending markets but expect it to get killed during downtrends, thus the need for a trend filter.

Some modification ideas:

• change the sensitivity of the upper/lower difference
• add more periods for a larger average difference

The formula is below:

//Correlation Reversal Indicator
set 1diff = close - ref(close,1)
set 2diff = close - ref(close,2)
set 3diff = close - ref(close,3)
set 4diff = close - ref(close,4)
set 5diff = close - ref(close,5)
set 6diff = close - ref(close,6)
set avediff = (1diff + 2diff + 3diff + 4diff + 5diff + 6diff)/6
set avediffnorm = (avediff / close)

set CRIraw = PCC(avediff,close,10)
Set CRI = if(CRIraw > .75, avediffnorm, 0)
//Set Sensitivity
// .02 means our sensitivity is ave of 2% change in the past x days
Set Upper = .02
Set Lower = -.02