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

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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 lst = new List();
				lst.AddRange(Positions);

				if( SymbolIsActive(stock) )
				{
					if( stressbar >= sell )
					{
						int lastActivePositionInStock = LastActivePositionInSym(lst,stock);

						if( (stressbar >= sell) && lastActivePositionInStock > -1 )
							SellAtMarket( bar+1, PositionslastActivePositionInStock, "Xrule" );
					}
						
					if( SymbolIsActive(idx))
					{
						if( indexTrendbar < indexTrendbar-1 )
						{
							int lastActivePositionInIndex = LastActivePositionInSym(lst,idx);
						
							if( lastActivePositionInIndex > -1 )
							{
								SetContext( idx, true );
								SellAtMarket( bar+1, PositionslastActivePositionInIndex, "Sell " + idx );
								RestoreContext();
							}
						}
					}
					else
					{
						if( indexTrendbar < indexTrendbar-1 )
						{
							SetContext( idx, true );
							BuyAtMarket( bar+1, "Buy " + idx );
							RestoreContext();
						}
					}
				}
				else
				{
					if( stressbar <= 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 lst, string symbol )
		{
			return lst.FindLastIndex( delegate(Position pos) { return pos.Symbol.Equals(symbol, StringComparison.Ordinal); });
		}		
	}
}

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