Super Pass Band Filter

This strategy was inspired by the article by John Ehlers “The Super Passband Filter” published in Technical Analysis of Stocks & Commodities in July 2016. The readers are referred to this article for details. Alternatively take contact with me so that I can send you the description of the idea.

Just to describe it briefly:

SMA cross

Let us have a look at the indicator below the price chart. It is called Super Pass Band Filter and consists of three curves. When the red line crosses over the lower green curve, we buy the stock. We exit the trade when the red line crosses above the upper green line. As mentioned above, the details you can find in John Ehler’s article.

At first, let us test stocks that are currently in S&P 500 index. Here are some selected results (using NinjaTrader software using data from Kinetick)

Profit factor 1.50
Max. drawdown -45.35%
Number of trades 13159
Percent profitable 77.81%
Average trade 2.17%
Ratio win/loss 0.43
Average time in market 64 days

Now, let us do the same for stocks from Russell 3000 index. The results are as follows:

Profit factor 2.33
Max. drawdown -43.15%
Number of trades 66214
Percent profitable 80.52%
Average trade 1.29%
Ratio win/loss 0.29
Average time in market 48 days

It is interesting to note that the percent of profitable trades is really high. Of course, the win/loss ratio is very low (so a typical combination). The results are positive, but the maximum drawdown is unfortunately very large.

There is, however, a possibility to combine this strategy with other strategies e.g. price action or simply play with the exits to increase the win/loss ratio. This I did not do in my backtesting so you can try yourself.