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TASC 2014-10 | Exploring Charting Techniques: Part 3 (Vervoort)

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Traders' Tip text

At first it may seem that the idea presented in the current month's article is trivial. After all, what else we don't know about the many variations of a moving average crossover? However, author Sylvain Vervoort takes the technique a step further, applying moving average crossovers on his modified Renko chart with an added twist of Heikin Ashi. The premise behind this is to reduce the noise of a typical used fixed-time-related chart and to produce less losing trades.

First, we build two moving averages: the fast is the SMA of the Renko-based typical price and the slow is a SMA of Heikin-Ashi recalculated prices. For simplicity of our example Strategy, we take a standard Renko chart and use Daily prices. Despite using the same period, the HA-based average always lags behind due to added smoothing. The rules are:

  1. When the 8-period “fast” average crosses above the “slower” counterpart of the same period, a long position is established.
  2. When the 8-period “fast” average crosses below the “slower” average of the same period, the long position is closed.

Image

Figure 1. A Wealth-Lab 6 chart illustrating the application of the system's rules on a Daily chart of AXP (American Express).

The green and red bricks on Figure 1 show Renko bricks supermiposed on the usual OHLC chart.

To execute the enclosed trading system, Wealth-Lab users may copy/paste the enclosed strategy’s C# code or simply let Wealth-Lab do the job: in the “Open Strategy” dialog, click “Download” to get the strategy code.

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

namespace WealthLab.Strategies { public class VervoortOct2014 : WealthScript { StrategyParameter paramRPU; StrategyParameter paramPeriod; public VervoortOct2014() { paramRPU = CreateParameter("Renko Units", 1, 1, 10, 1); paramPeriod = CreateParameter("MA Period", 8, 2, 20, 1); } protected override void Execute() { double rpu = paramRPU.Value; int period = paramPeriod.ValueInt; TRenko renko = new TRenko(Bars, rpu); DataSeries dsOpen = new DataSeries(Bars,"R-Open"), dsHigh = new DataSeries(Bars,"R-High"), dsLow = new DataSeries(Bars,"R-Low"), dsClose = new DataSeries(Bars,"R-Close"); DataSeries haOpen = new DataSeries(Bars,"HA-Open"), haHigh = new DataSeries(Bars,"HA-High"), haLow = new DataSeries(Bars,"HA-Low"), haClose = new DataSeries(Bars,"HA-Close"); for(int bar = 1; bar < Bars.Count; bar++) { Renko rko = renko.Columns[bar]; // Create Renko-based OHLC and Heikin Ashi for averaging if( rko.Col > -1 ) { if( rko.Col > renko.Columns[bar-1].Col ) { Renko prev = renko.Columns[bar-1];

double open = rko.DirectionUp ? rko.Low : rko.High; double close = !rko.DirectionUp ? rko.Low : rko.High; double high = rko.High; double low = rko.Low; double prevOpen = prev.DirectionUp ? prev.Low : prev.High; double prevClose = !prev.DirectionUp ? prev.Low : prev.High; double prevHigh = prev.High; double prevLow = prev.Low; double _haClose = (open + high + low + close) / 4; double _haOpen = (prevOpen + prevClose) / 2; double _haHigh = Math.Max( Math.Max(high, open), close ); double _haLow = Math.Min( Math.Min(low, open), close ); dsOpen[bar] = open; dsHigh[bar] = high; dsLow[bar] = low; dsClose[bar] = close; haOpen[bar] = _haOpen; haHigh[bar] = _haHigh; haLow[bar] = _haLow; haClose[bar] = _haClose; } else { dsOpen[bar] = dsOpen[bar-1]; dsHigh[bar] = dsHigh[bar-1]; dsLow[bar] = dsLow[bar-1]; dsClose[bar] = dsClose[bar-1]; haOpen[bar] = haOpen[bar-1]; haHigh[bar] = haHigh[bar-1]; haLow[bar] = haLow[bar-1]; haClose[bar] = haClose[bar-1]; } } } //The first and faster average is the SMA of the typical price (HLC/3) //The second average is a SMA of heikin ashi re-calculated prices or haOpen + haHigh + haLow + haClose divided by four

DataSeries maTypical = (SMA.Series( dsHigh, period ) + SMA.Series( dsLow, period ) + SMA.Series( dsClose, period )) / 3; DataSeries maHeikin = (SMA.Series( haOpen, period ) + SMA.Series( haHigh, period ) + SMA.Series( haLow, period ) + SMA.Series( haClose, period )) / 4;

maTypical.Description = "SMA of Renko-based typical price"; maHeikin.Description = "SMA of Renko-based Heikin Ashi"; PlotSeries( PricePane, maTypical, Color.Blue, LineStyle.Solid, 1 ); PlotSeries( PricePane, maHeikin, Color.Red, LineStyle.Solid, 1 );

for(int bar = 1; bar < Bars.Count; bar++) { // Detect crossover/crossunder and store state in a variable bool maXo = CrossOver(bar, maTypical, maHeikin); bool maXu = CrossUnder(bar, maTypical, maHeikin); Position p = LastPosition; if ( IsLastPositionActive ) { if ( maXu ) SellAtMarket( bar + 1, p ); } else { if ( maXo ) BuyAtMarket( bar + 1 ); }

} } } }

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

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