Trend Following with a Simplified Market-Breadth Proxy

Summary

This strategy combines a moving-average trend filter with a breadth-style participation proxy and ATR-based exits. It treats the fast EMA being above the slow EMA as a bullish trend, and below it as bearish. The proxy is the rolling average of a binary measure indicating whether the chart’s close is above its slow EMA; thresholds classify the proxy as strong or weak. Longs require bullish trend and strong proxy readings, while shorts require bearish trend and weak readings. Stops and profit targets are set using ATR and a risk-reward multiple.

The accompanying discussion explains why market participation can add context to index trends, but the script does not use exchange-wide advancing stocks or other actual breadth data. Its proxy is calculated from the instrument on the chart, so it cannot establish whether a broader market move has wide participation. The document presents a strategy concept for research and testing, but gives no performance results or evidence that its thresholds, moving averages, or exit parameters are profitable. Results would depend on instrument, data, and execution assumptions.

Key ideas

• The trend filter compares fast and slow exponential moving averages to determine directional bias.
• A rolling proportion of closes above the slow EMA serves as a simplified breadth-style filter.
• Long and short entries require trend direction and proxy strength or weakness to agree.
• ATR-based stops and risk-reward targets define exits, but the document reports no performance evidence.
• The proxy uses only the charted instrument and is not a measure of exchange-wide market breadth.

Tags

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