CAM indicator

This indicator was introduced in the article “The CAM Indicator For Trends And Countertrends” by Barbara Star in Technical Analysis of Stocks & Commodities (January 2018). The indicator is based on two well-known indicators: MACD (standard input) and the 10-day ADX.

The CAM indicator consists of four patterns:

CAM-UP: both ADX and MACD increase (i.e. an upward moving market)

CAM-PB: both ADX and MACD decrease (i.e. a possible pullback)

CAM-DN: ADX increases and MACD decreases (i.e. a downward moving market)

CAM-CT: ADX decreases and MACD increases (i.e. a counter-trend)

In this way, we can imagine four different entry strategies that a trader may choose. The exit is not specified but according to some backtesting results shown also in the same journal, a good performance is obtained if trades are closed after 12 trading days. I did the same in my backtesting. Of course, this is not an optimal solution but will still illustrate the concept.

Many traders may expect the first patter, i.e. CAM-UP, to result in the best performance. So looking at first at the stocks from S&P 500 index:

Profit factor 1.12
Max. drawdown -54.82%
Number of trades 60743
Percent profitable 54.63%
Average trade 0.48%
Ratio win/loss 0.96
Average time in market 20 days

And now, for stocks from Russell 3000 index:

Profit factor 1.05
Max. drawdown -54.94%
Number of trades 163395
Percent profitable 53.04%
Average trade 0.35%
Ratio win/loss 0.96
Average time in market 20 days

It is difficult to say that the results are good. For instance, the percentage of the profitable trades is only slightly better than 50%. Considering the fact that the win/loss ratio is actually less than 1.0, this indicates a rather poor performance. This is also confirmed by the high maximum drawdown.

Therefore I tried also the other parameters. It is interesting to note that according to my backtesting, positive results are obtained when using the third parameter, i.e. CAM-DN. This can be illustrated in the figure:

Here are the results (using NinjaTrader software using data from Kinetick) when backtesting stocks from S&P 500 index:

Profit factor 1.21
Max. drawdown -54.64%
Number of trades 57033
Percent profitable 55.28%
Average trade 0.68%
Ratio win/loss 1.01
Average time in market 20 days

And, the same when using stocks from Russell 3000 index:

Profit factor 1.14
Max. drawdown -53.47%
Number of trade 150726
Percent profitable 54.15%
Average trade 0.59%
Ratio win/loss 0.99
Average time in market 20 days

So the results are not so brilliant (see especially the very high maximum drawdown) but at least the strategy is easy to use in practice.

 

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