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:

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

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.Columnsbar;
				
				// Create Renko-based OHLC and Heikin Ashi for averaging
				if( rko.Col > -1 )
				{
					if( rko.Col > renko.Columnsbar-1.Col )
					{
						Renko prev = renko.Columnsbar-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 );
						
						dsOpenbar = open;
						dsHighbar = high;
						dsLowbar = low;
						dsClosebar = close;
						
						haOpenbar = _haOpen;
						haHighbar = _haHigh;
						haLowbar = _haLow;
						haClosebar = _haClose;
					}
					else
					{
						dsOpenbar = dsOpenbar-1;
						dsHighbar = dsHighbar-1;
						dsLowbar = dsLowbar-1;
						dsClosebar = dsClosebar-1;
						
						haOpenbar = haOpenbar-1;
						haHighbar = haHighbar-1;
						haLowbar = haLowbar-1;
						haClosebar = haClosebar-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