TASC 2008-07 | Leader Of The MACD (Siligardos)

Modified on 2010/09/12 11:20 by Eugene — Categorized as: TASC Traders Tips

Traders' Tip text

Programming "complex" divergences in Wealth-Lab 6 is not complex and can be accomplished in different ways (for example, see February Traders' Tip "Trading Divergences"). Here we present an alternative approach that identifies a divergence between price and the "Leader of the MACD" when it fails to confirm a highest high, in its turn, creating a lower peak. (To save space, the rules are for short trades but reversing them is pretty easy.)

Image

Figure 1. Illustrating on a short trade in Sugar futures, the "Leader of the MACD" helps spot a complex bearish divergence.

Strategy Code


using System;
using System.Collections.Generic;
using System.Text;
using System.Drawing;
using WealthLab;
using WealthLab.Indicators;

namespace WealthLab.Strategies
{
	public class LeaderOfMACD : DataSeries
	{
		public LeaderOfMACD ( Bars bars ) : base(bars,"Leader of the MACD")
		{
			EMACalculation cm = EMACalculation.Modern;
			EMA ema12 = EMA.Series( bars.Close, 12, cm );
			EMA ema26 = EMA.Series( bars.Close, 26, cm );			
			DataSeries Indicator1 = ema12 + EMA.Series( bars.Close - ema12, 12, cm );
			DataSeries Indicator2 = ema26 + EMA.Series( bars.Close - ema26, 26, cm );

			for (int bar = FirstValidValue; bar < bars.Count; bar++)
				this[bar] = Indicator1[bar] - Indicator2[bar];
		}
		public static LeaderOfMACD Series( Bars bars )
		{
			LeaderOfMACD _LeaderOfMACD = new LeaderOfMACD( bars );
			return _LeaderOfMACD;
		}
	}

	/* 
		Leader of the MACD divergence:
		Price sets a highest high but the indicator fails to confirm the new high and turns down
	*/
	
	public class Leader_Divergence : WealthScript
	{
		private StrategyParameter paramHighest;
		
		public Leader_Divergence()
		{
			paramHighest = CreateParameter("Highest high of", 20, 5, 50, 1);
		}
		
		protected override void Execute()
		{
			bool peak = false; int peakBar = -1;
			int high = paramHighest.ValueInt;
				
			LeaderOfMACD leader = LeaderOfMACD.Series( Bars );
			Highest indicatorHighest = Highest.Series( leader, high );
			Highest hHigh = Highest.Series( High, high );
			MACD macd = new MACD( Close, "MACD" ); macd.Description = "MACD"; 
			EMA signal = EMA.Series( macd, 9, EMACalculation.Modern ); signal.Description = "Signal Line of MACD";
			
			HideVolume(); LineStyle solid = LineStyle.Solid;
			ChartPane leaderPane = CreatePane( 50, false, true );
			PlotSeries( leaderPane, leader, Color.Red, solid, 2 );
			PlotSeries( leaderPane, macd, Color.Black, solid, 1 );			
			PlotSeries( leaderPane, signal, Color.Blue, solid, 1 );

			for(int bar = 80; bar < Bars.Count; bar++)
			{
				if (!IsLastPositionActive)
				{
					/* 1st peak: both price and indicator */
					
					if( peak == false ) 
					{
						if( ( High[bar-1] == Highest.Series( High, high )[bar-1] ) 
							& ( leader[bar-1] == Highest.Series( leader, high )[bar-1] ) 
							& TurnDown( bar, High ) & TurnDown( bar, leader ) )							
						{
							peak = true; peakBar = bar-1; 
						}
					}
					
					if( peak == true )
					{
						if( ( High[bar] != Highest.Series( High, high )[bar] ) 
							& ( leader[bar] == Highest.Series( leader, high )[bar] ) )
								peak = false;					
					}

					/* 2nd peak: price high not confirmed by the indicator */

					if( peak == true ) 
					{
						if( ( High[bar-1] == Highest.Series( High, high )[bar-1] ) 
							& ( High[bar-1] >= High[peakBar] ) 
							& ( leader[bar-1] != Highest.Series( leader, high )[bar-1] ) 
							& ( leader[bar-1] < leader[peakBar] ) &
							TurnDown( bar, High ) & TurnDown( bar, leader ) )
						{
							peak = false; 
							ShortAtClose( bar );
						
							/* Highlight divergence */
						
							for (int b = peakBar; b <= bar; b++)
								SetPaneBackgroundColor( leaderPane, b, Color.FromArgb( 30, Color.LightCoral ) );
							
							DrawLine( PricePane, peakBar, High[peakBar], bar-1, High[bar-1], Color.Red, solid, 2 );
							DrawLine( leaderPane, peakBar, leader[peakBar], bar-1, leader[bar-1], Color.Blue, solid, 2 );
						}
					}
				} else
				{
					/* Exit after 5 days */
					
					Position p = LastPosition;
					if ( bar+1 - p.EntryBar >= 5 )
						CoverAtMarket( bar+1, p, "Timed" ); 
				}
			}
		}
	}
}