Gladstone Investment Corp (NASDAQ:GAIN) and Technical Analysis: A Trigger to Get Long: Three Inside Up, RSI, Moving Average Trigger
Date Published: 2022-03-26
DisclaimerThe results here are provided for general informational purposes from the CMLviz Trade Machine Stock Option Backtester as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation.
Preface: Precision Technical Analysis, Not Just Drawing "Lines on a Chart"Either there is a technical reversal trigger that signalled an impending intermediate-term rally (a bullish move) in a stock or there is not.
Rather than "draw lines on that chart that time," we tested it empirically across a decade and half of data and tens of thousands of backtests.
In this case we specially look for the technical conditions that demonstrate three requirements. This doesn't mean it's a trigger now, it means creating an alert for the coincidence of technicals would help. We wait until these three things happen at the same time:
Here is the set-up in Stock TradeMachine®.
And in words:
1. A stock has experienced a three inside and up move.
2. The stock price has a 14-day RSI below 60, to assure it is not in an overbought condition.
3. The stock price is below the 21-day exponential moving average (EMA), again forcing the upside to have room.
This strategy looks to win if the stock rallies in the short- to intermediate-term, and in this case, specifically a 22-trading day window (22 trading days is about one calendar month) after the trigger.
After rigorous testing over multiple time periods including, but not limited to, the 13-year period from January 2007 through March 2020, and the Great Recession (September 2007 through March 2009) and over 100,000 back-tests, today we demonstrate the technical conditions that have provided a strong intermediate-term bullish trigger for Gladstone Investment Corp (NASDAQ:GAIN) .
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CML Efficiency Score™At Capital Market Laboratories (CMLviz), we have created a standardized reward to risk measurement for backtests called the CML Efficiency Score™ (ES).
The ES takes the average trade return from each triggered backtest (the 'reward') and divides it by the maximum drawdown (the risk).
The max drawdown is measured as the largest open-to-trough decline in the value of a backtest for each new opening trade.
Our view is that an CML Efficiency Score above 0.8 is very good. An CML Efficiency Score above 1.0 is excellent, demonstrating that the average return is in fact larger than the maximum realized loss.
Now, let's make our technical analysis precise with the help of computing power (for free).
3-Year Backtest Results: Three Inside Up with RSI in Gladstone Investment CorpHere are the results for a long stock position held for 22 trading days tested over the last 3-years in Gladstone Investment Corp once the technical requirements have been met:
The mechanics of the Stock TradeMachine® are that it uses end of day prices for every back-test entry and exit (every trigger).
We see 2 wins and 3 losses with a total backtest return of 21%.
We note an CML Efficiency Score™ just below 0.8.
One-Year Backtest Results: Three Inside Up with RSI in Gladstone Investment CorpHere are the results of the same trigger, but hyper focusing one just the last year:
We note an CML Efficiency Score™ above 1.00, which is excellent.
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Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition.
Please note that the executions and other statistics in this article are hypothetical, and do not reflect the impact, if any, of certain market factors such as liquidity and slippage.