A New Trend Indicator: MSR
While my own research focus has generally shifted towards the technology of combining multi-indicator/multi-variable models, ultimately I depend on various single indicator inputs for this approach. Therefore, having indicators that capture something that is slightly different or can reduce the complexity of a model by condensing a concept into one number is still highly desirable. A good post by Quantum Financier highlights the importance of these issues: http://quantumfinancier.wordpress.com/2010/10/22/considerations-in-systemindicator-design/ .
In this case, I was looking for a support and resistance indicator that captured the typical or middle price over a short to intermediate time frame. I also wanted something that could be normalized so that I could avoid having the inflexibility of binary rules, or specific levels for entry and exits. This was something very simple that I came up with that performed well on the S&P500 (SPY), achieving nearly a 10% cagr which is impressive for a short-term indicator.
MSR= (10-day median of (H, L, C) – 20-day MAX (H, L, C))/(20-day MAX (H, L, C))
then take the 252-day percentrank of MSR or percentile ranking
long trades initiated>.5
short trades are initiated<.5