TASC 2014-03 | Timing The Market With Pairs (Kaufman)

RSS

Traders' Tip text

In this month's issue, Mr. Kaufman's article promises an interesting new take on pairs trading. As presented in the article, combining the new Stochastic-derived intermarket “Stress” indicator with few clear position sizing and risk management rules lays the foundation of a long-only market timing system.

Figure 1. A Wealth-Lab 6 chart illustrating the application of the system's rules on a Daily chart of HES (the middle pane). A SPY chart is shown in the upper pane, and the Stress indicator is plotted on the bottom pane.

To execute the included trading system, Wealth-Lab users need to install (or update) the latest version of the TASCIndicators library from the Extensions section of our website if they haven't already done so, and restart Wealth-Lab.


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

namespace WealthLab.Strategies
{
	public class PJKPairs1 : WealthScript
	{
		private StrategyParameter paramPeriod;
		private StrategyParameter paramBuy;
		private StrategyParameter paramSell;
		
		public PJKPairs1()
		{
			paramPeriod = CreateParameter("Period", 60, 10, 100, 10);
			paramBuy = CreateParameter("Buy", 10, 10, 30, 10);
			paramSell = CreateParameter("Sell", 50, 50, 90, 10);
		}
		
		protected override void Execute()
		{
			int period = paramPeriod.ValueInt;
			int buy = paramBuy.ValueInt;
			int sell = paramSell.ValueInt;

			string stock = Bars.Symbol;
			string idx = "SPY";
			Bars index = GetExternalSymbol( idx, true );
			DataSeries indexTrend = SMA.Series( index.Close, period );
			DataSeries stress = Stress.Series( Bars, index, period );

			ChartPane sPane = CreatePane( 30, false, true );
			PlotSeries( sPane, stress, Color.Coral, LineStyle.Solid, 2 );
			DrawHorzLine( sPane, 10, Color.Blue, LineStyle.Solid, 1 );
			DrawHorzLine( sPane, 90, Color.Red, LineStyle.Solid, 1 );
			
			ChartPane idxPane = CreatePane( 30, true, true );
			PlotSymbol( idxPane, index, Color.DarkGreen, Color.DarkMagenta );
			
			HideVolume();

			for(int bar = Bars.FirstActualBar + period; bar < Bars.Count; bar++)
			{
				List<Position> lst = new List<Position>();
				lst.AddRange(Positions);

				if( SymbolIsActive(stock) )
				{
					if( stress[bar] >= sell )
					{
						int lastActivePositionInStock = LastActivePositionInSym(lst,stock);

						if( (stress[bar] >= sell) && lastActivePositionInStock > -1 )
							SellAtMarket( bar+1, Positions[lastActivePositionInStock], "Xrule" );
					}
						
					if( SymbolIsActive(idx))
					{
						if( indexTrend[bar] < indexTrend[bar-1] )
						{
							int lastActivePositionInIndex = LastActivePositionInSym(lst,idx);
						
							if( lastActivePositionInIndex > -1 )
							{
								SetContext( idx, true );
								SellAtMarket( bar+1, Positions[lastActivePositionInIndex], "Sell " + idx );
								RestoreContext();
							}
						}
					}
					else
					{
						if( indexTrend[bar] < indexTrend[bar-1] )
						{
							SetContext( idx, true );
							BuyAtMarket( bar+1, "Buy " + idx );
							RestoreContext();
						}
					}
				}
				else
				{
					if( stress[bar] <= buy )
					{							
						BuyAtMarket( bar+1, "Buy " + stock );						
					}
				}
			}
		}
		
		private bool SymbolIsActive(string sym)
		{
			foreach (Position p in ActivePositions)
				if( sym == p.Bars.Symbol )
					return true;         
			return false;
		}
		
		private int LastActivePositionInSym( List<Position> lst, string symbol )
		{
			return lst.FindLastIndex( delegate(Position pos) { return pos.Symbol.Equals(symbol, StringComparison.Ordinal); });
		}		
	}
}

Eugene
Wealth-Lab team
www.wealth-lab.com