This script implements the Power X trading strategy by Markus Heitkoetter and Rockwell Trading. The strategy is described in detail in "The PowerX Strategy: How to Trade Stocks and Options in Only 15 Minutes a Day" written by Markus Heitkoetter.
The Power X trading strategy uses RSI, Slow Stochastic and MACD indicators. When RSI and Slow Stochastic are both greater than 50 and MACD crosses up the signal line, it signals an up-trend. If RSI and slow stochastic are both less than 50 and MACD crosses down the signal line, it signals a down-trend. Other conditions signal no trend. There is an official version of this indicator available: PowerX Strategy Bar Coloring OFFICIAL VERSION.
This script opens a long entry with an up-trend momentum and a short entry with down-trend momentum. Trades are exited when profit target or stop loss is reached. Profit target and stop loss are calculated based on 7 days Average Daily Range (ADR). If the momentum is lost, a trade is exited the next day. The quantity of assets to buy/sell is calculated based on the stop loss to limit the risk to a user defined percentage of the initial capital.
There is another implementation of the Power X trading strategy available by therealhaolu: Power X Strategy Back-test. However, according to the comments this script seems to have some flaws.
How is "Capital At Risk" used? If this is the % of capital allocated to any stock (and then [per-trade] risk is the % of that value), ISTM quantity is not calculating correctly.
drg86
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@IanS00, Good question. I was struggling with this as well.
Capital at risk is the amount you are willing to loose, not the capital you want to allocate to a position. The quantity to buy or sell is based on this value adjusted by the average daily range (ADR) of the last seven days which in turn is weighted by the risk to reward ratio. In fact, the quantity is based on the risk, only. The higher the ADR, i.e. volatility, the less the quantity. Exit prices for stop loss and take profit are defined to loose at most capital at risk and gain at most according to your desired reward.
Does this answer your question?
IanS00
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@drg86, thank you, yes. Although I was puzzled as it seems possible for "Capital at risk" to be higher than total capital. Are you a user of PowerX Optimizer? I can't find any community of users, which seems unusual.
drg86
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@IanS00, Well, the capital at risk is set as a percentage and bounded between 0 and 100. So it should not be possible to be higher than the total capital.
drg86
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For those interested, I used this video as a reference: https://player vimeo com/video/609995415?h=1dece9baa2 (replace spaces with dots between 'player' and 'vimeo', and 'vimeo' and 'com'). See 35:44. The results of this script are pretty close to the ones shown there but the more recent trades deviate from each other.
bontilaojamesbrian
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What is the difference between this script and therealhaolu's? Thanks
drg86
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@bontilaojamesbrian, well, I haven't checked the code of @therealhaolu in detail, but according to the comments by @davidmhaylett the calculation of the position size is wrong and thus the ROI shown by TradingView is as well.
drg86
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I have no clue how the ROI in the PowerX Optimizer is calculated. In the video I used as a reference the ROI for the conservative strategy is 29.93% at a profit of $1495.70. Based on an initial capital of $10,000 the ROI should be 14.95% IMHO.
bontilaojamesbrian
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@drg86, Return on Investment (Annualised) = Total Profit / Last Position Size / 2
drg86
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@bontilaojamesbrian, thanks for clarification! I've never heard of this way to calculate the ROI. Is this a special Rockwell Trading way of doing this?