Portfolio Boss Documentation

Index ATR Spread Filter

 

 

This filter looks at the ATR Spread between an instrument and an index, and if such ATR Spread falls within a certain threshold, the instrument will be considered as a buy/sell.

In practical terms, this filter looks at the current price gap movement between the instrument and index, so you can buy that instrument at a big discount knowing that the instrument will fall in line again with the index (provided the Portfolio is highly correlated with the index).

Higher ATR Spread (either positive or negative) means the price gap movement between them is big (if the Spread is high enough, the instrument and Index might be in different trends). Lower ATR Spread (nearing 0) means the price gap movement is low.

So, this is how this filter works:
(please read this page to understand ATR and SMA.)

 

 

  • An x days SMA and y days ATR (Average True Range) are calculated for the instrument.
  • Then, the filter calculates how far up or down the last closing price deviates from the SMA, that is, how many ATRs in that distance; if the last closing price is below the SMA, the distance would be negative, and vice versa.
  • The same components are also calculated for the Index, that is, the Index's ATR, SMA, and the ATR-distance between the last closing price and the SMA.
  • Finally, it subtracts the instrument's ATR-distance from the Index's ATR-distance, which results in the final ATR Spread.

 

This filter is best used with another filter that confirms whether the index is uptrending or downtrending, so you don't blindly follow that index. Another filter may also be used to find instruments that are highly correlated with the index.

 


 

1.  The first parameter defines the ATR period for both the instrument and index.

 

 


 

2.  The second parameter defines what index to use.

 

 


 

3.  The third parameter defines the SMA period for both the instrument and index.

 

 


 

4.  The fourth parameter defines whether the resulting ATR Spread must be “Less than”, “Greater than”, “Between”, or “Not between” the threshold ATR Spread value(s).  

 

 

Keep in mind, even though a big ATR Spread may mean a big discount for entering a Position, it may also mean the index or the instrument is reversing trend. So preferably instead of using “Greater than”, you use the “Between” (as shown above).

That is, you're still looking for a discount, but not big enough that the instrument (or index) is potentially reversing trend, thus going the opposite direction from each other.

For a Sell Filter though, it's good to use the value “Greater than”, since the price gap movement has gone beyond the threshold (index and instrument are potentially not related anymore), so exit the position.

 

 


 

5.  The fifth parameter defines the threshold ATR Spread. If you choose “Between” or “Not between” in the previous parameter, you can define the min and max threshold values here.

 

 


 

Note:

 

Once this filter is applied, you can see four indicators displayed below the Price Chart (at the Instrument Tab):

 

 

      • one indicator shows the x days ATR;
      • one indicator shows the ATR-Distance of the instrument from its SMA;
      • one indicator shows the ATR-Distance of the index from its SMA;
      • and one indicator shows the ATR Spread between the instrument and index.

 

As well, there's an SMA indicator that you specified through this filter, being overlaid on the Price Chart.

 

 

 

 

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