Backtesting Oversold Buy Signals

The oversold buy signal is a short term reversal signal, allowing swing traders to establish a low risk entry point for trades lasting days to weeks or for trend traders to add capital to previously established trending positions.    

​Requirements for an Oversold Buy Signal

• Stock trading at an 8 day low
• Power Gauge Bullish or Very Bullish
• OB/OS oscillator below 30

​As an option trader, and one who prefers selling puts and put spreads, the Oversold Buy / Overbought Sell Signal is my favorite to use.  But I've never developed a trading expectancy on that signal alone.   

---

Entry Criteria

• Timeframe - January 1 - present
• Optionablel underlyings trading 1 million shares or greater per day
• Power Gauge  must be green at the time the trade taken
• Money Flow must be green at the time of the trade
• Relative Strength must be green 
• Price must be above the Chaikin Long Term Trend.
• Stock must match oversold buy signal requirements. 
• Earnings dates had no bearing on stock selection.   

​Testing Parameters

• Since Chaikin Analytics is an End of Day system, we entered positions that met the above criteria the following trading day at the close.
• We  closed the positions 14 calendar days later (at the close) or the first trading day when the exit date fell on a weekend.    This was to simulate the typical swing trade
• We also sold stocks 30 calendars days after the OSB trading signal  (at the close) or the first trading day when the exit date fell on a weekend.    This was to simulate the typical holding period for a sold put or put spread. 

Typical Buy Candidate

We'll publish results TOMORROW