What does the strategy do?
The strategy looks at the change in price over four different periods, 20, 45, 90 and 180 days. The change in price is then divided by the average true range over the same periods. Average true range looks for the largest absolute value of these three relationships:
- today’s range (high - low)
- difference between yesterday’s close and today’s high
- difference between yesterday’s close and today’s low
The best overall efficiency is obtained by averaging the four different efficiencies.