Following on from my last couple of posts on the Parabolic Time Oscilator (PTO), I’ve been playing around with another variation on this theme. David Varadi introduced the PTO which looks at the length of time a market has been above or below is PSAR using a ranking to measure the stretch.
I realised that not everyone will be familiar with the PSAR. It comes as standard with most charting package, but here’s a visual in any case:
I investigated this and found that the PTO is generally mean reverting – i.e. the longer the market has been above its PSAR, the more likely a reversal is to come. More specifically, it doesn’t dramatically improve the ability to predict daily direction,