Active Trader Trading System Labs: 2007

What is needed to test put/call ratio readings are extreme levels that can mechanically signal buy or sell. A common rule is to buy when the ratio is at or above 1.0 and sell when it is at or below 0.6.

Preliminary testing of this simple rule on the Active Trader Standard Stock Portfolio and the Dow Jones Industrial Average (DJIA) stocks showed positive, but second-rate, results. This led to the idea to construct an experimental portfolio of exchange-traded funds (ETFs) that demonstrate more uniform, index-like behavior.