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Perry Kaufman's article, “Timing the Market with Pairs”, described
his Stress indicator and how to use it in pair trading. The formula for this indicator is listed
below:
s1c:= Security("SPY",C);
s1l:= Security("SPY",L);
s1h:= Security("SPY",H);
Prd:= Input("Stoch Periods", 1, 100, 10);
R1:=(HHV(H,prd)-LLV(L,prd));
r2:= (HHV(s1h,prd)-LLV(s1l,prd));
ST1:= (C-LLV(L,prd))/r1;
ST2:= (s1c-LLV(s1l,prd))/r2;
diff:= ST1-ST2;
Sr1 := HHV(diff,prd)-LLV(diff,prd);
Stress := If(SR1<>0,100*((diff-LLV(diff,prd))/SR1),
PREV);
stress;
100 * ST1;
100 * ST2
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