Normalized Price-to-SMA Risk Thresholds for Long and Short Signals

Summary

This method measures the logarithmic distance between price and a 374-period simple moving average, scales that value by a time factor, then normalizes it using tracked historical extremes. The resulting indicator ranges from zero to one and drives long, short, and exit signals: low readings favor long entries, while high readings trigger long exits or short entries; lower readings later close shorts. The stated rules include a fixed five-point stop. The source also describes chart labels for threshold levels.

The document presents the indicator as a way to frame price extension relative to a long-term average, but does not provide reported performance results. Its discussion flags delayed signals from the long moving average, sensitivity to fixed thresholds, and stops that do not adapt to changing volatility. Normalizing with historical extremes can also make readings sensitive to new extremes and limited history. It suggests testing adaptive stops, dynamic thresholds, trend filters, and multi-period confirmation, but these are proposed modifications, not demonstrated improvements.

Key ideas

• The indicator normalizes a time-adjusted logarithmic price deviation from a 374-period SMA.
• Low normalized readings trigger long entries, while high readings can close longs or open shorts.
• A fixed five-point stop is specified for both long and short positions.
• Historical-extreme normalization and fixed thresholds may behave poorly when market conditions change.
• The document proposes adaptive risk controls but gives no numerical performance evidence.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.