CCI Strat class - if someone has time today can they maybe look into this (im a bit too busy with normal work ). Its and extract I got from a book on a similar trend following system. I dont want to complicate things at all just want to know if it makes sense or not. THANKS
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In particular, to avoid trading whipsaws, this strategy uses two trade entry filters based on ADX and RAVI index values. ADX stands for Average Directional Index. This is a technical indicator that helps to recognize trending markets, so that trend following systems can avoid being whipsawed by fast reversals in moving average crossovers in flat or sideways markets. When this index rises, it indicates a trending market; when it falls, a sideways market. Typically, when the ADX indicator is above 40, and then falls, a sideways or consolidating market is emerging. Conversely, when the indicator is below 20 and then rises, a trending market is emerging. The 65sma_3cc strategy uses an ADX filter to avoid entering new trades in a sideways market. RAVI stands for Range Action Verification Index. This is a technical indicator that also helps to recognize trending markets, for the same purpose of helping trend following systems to avoid entering whipsaw trades in sideways markets. The RAVI index is a moving average crossover system itself—it uses a 7-day fast average and a 65-day slow average. The RAVI index value is defined as the absolute value of the percentage difference between the 7 and 65 day averages. When a market is moving sideways, the two averages tend to have the same values, so the difference is small. Conversely, when the market is trending, the fast average rapidly pulls away from the slow average, producing a larger difference and larger index value. Generally speaking, a RAVI value below 3 percent indicates sideways prices, and above 3 percent, trending prices.