TradeStation Review 2018
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For this second tutorial we will explore using Tradescape technology for constructing an intraday trading signaler. There is a separate Tutorial 2 for the Standalone version of tradestation chart trading tutorial platform. Let us begin with an important point. If you are trading futures or currencies or any entity that trades 24 hours a day, you will not have to worry about overnight gaps. A signaler will still have to contend with the wild flurry of activity at certain hours of the day and the near absence of activity at others.
The tradescape EM algorithm generally manages this sufficiently well, even when the intraday movements are far from orderly. This is an example from the commodity data we will be using for this tutorial. There can be wild intraday movements that are hardly indicative of order. These are not overnight gaps. These kind of abrupt movements occur intraday. There are often sharp discontinuities that can play havoc with many signalers that seek to trade the gap.
The tradescape EM algorithm manages the order can be extracted from such price movements about as well as can be expected, but the win rate will necessarily be weak. When there is a sharp overnight movement, we can readily assume that this will go against the trade approximately half the time. Since the overnight moves often exceed the intraday movements, those positions are often closed for losses. There are also a lot of chaotic price movements intraday.
Please remember tradestation chart trading tutorial the tradescape is a map of the tradable order in the price movements.
Overnight gaps plus the intraday chaos does not equal order. If you make the choice to be out of the market everyday prior to the close, the gaps can be mathematically subtracted and the historical entity becomes solely the intraday movements of price. If you do this, you have to be careful. There are entities where all of the long-term profitability rests just in the gaps and where tradestation chart trading tutorial sum of the intraday movements are net negative.
As a case in point, let's look at AAPL for ten years with and without the overnight gaps mathematically removed:. An tradestation chart trading tutorial can look vastly different with the overnight gaps removed. This was done with 5min bars, meaning the overnight movements and the movement in the first 5 minutes of each day's trading have been mathematically removed. All of the Tradescape functions have a Degap option. If this is set, it is assumed you will exit all positions at the closing price of the day and never be in the market overnight.
This example should make clear the rationale for our including this option in all tradescape procedures. For intraday traders, this choice with respect to overnight hold of positions is a profound one that dramatically changes the entity you are in actuality trading. Even with this trading approach of avoiding overnight positions, there can be a decided lack of smoothness at the seams.
The mathematical approach enforces continuity, but if tradestation chart trading tutorial price is racing skyward just before close, and it falls like a brick in the first bar after the next day's open, the joined price point will have a very different behavior prior than after, and any trading algorithm using the tradestation chart trading tutorial day's information must account that in some fashion. Alternatively, one can wait until only the present day's data are used for the signal.
The basic tradescape procedures process data of any bar density. You can process 1 minute bars as easily as EOD data. A tradescape is tradestation chart trading tutorial specific, and it will be data sampling specific. There is no intraday tradescape per se. There is only the tradescape: Intraday tradescapes are only a convenience that allows a panel of different bar densities to be constructed using just one input data stream. Their purpose is strictly for identifying the data density and time horizon for best trading the measure of order that can be realized from intraday price movements.
In our experience, we have seen vast differences between entities with respect to optimal data densities and time horizons. Note that you can add multiple instances of a tradestation chart trading tutorial entity to a chart, each at different bar sampling rates, and generate a panel of tradescapes. When you do this, you specify a fixed bar count for each tradescape. This will correspond to tradestation chart trading tutorial lengths of time for each analysis.
Intraday tradescapes use a single input data stream to cover a single time period for each of the bar densities automatically generated. We will use YG. We have routinely processed 10 years of 1min data 1 million bars in an Intraday Tradescape analysis. We tradestation chart trading tutorial have tradestation chart trading tutorial reductions for 5min and 10min bars, as we are using here.
Note that when trading at the time horizons typical of 5min or 10min bars, a year's data is certainly sufficient in terms of count of trades. It may not be sufficient, however, for a wide representation of market states. On the Inputs tab, change the WalkFwd to this will give five year's analysis prior to the most recent year.
Change the Reduce setting to 4 ; with 5-min input data, this generates of panel of 5min, 10min, 15min, 30min, 1hr, and end of day as of midnight tradescapes. Enter bars for the Reserved period. This represents the most recent year of data.
Note that for this continuous representation of YG, there are tradestation chart trading tutorial bars, intraday periods where there are no trades.
It can take up to a minute for TradeStation to export the tradestation chart trading tutorial points. A progress bar will then show the different tradescapes as they are being created the progress bar can be suppressed by setting InactiveAtLastBar to 2. This processing can take up to ten minutes depending on the speed of your computer. Each tradescape consists of different backtests, and for each an EM signal must be constructed and the resultant equity curve analyzed.
The 5-min bars will require the greatest analysis time since there are nearlybars in the signal and equity plot and there are of these that must be computed to construct the tradescape. The analysis is done independently from the TradeStation environment in a separate process, so you can resume your work in TradeStation while the computations continue.
When the processing is complete, the six intraday tradescapes will be plotted. They cover only long trades. This will allow us to better see the sweet spot we will be targeting. As you will note from the titles, the first panel has points 5min bars and covers five years. The difference in dates is a consequence of how the missing bars are accounted in the reduction. We generally expect to see major differences from the different sampling rates.
We look first at the RRtthe default reward to pain. While we expect more reward from more frequent trading and we also expect less pain since we can react more quickly to adverse price movements, faster is not always better.
There is good news. We see a very lag tolerant behavior. Commodities tradestation chart trading tutorial regarded as strongly trending entities, as in the 'turtle trading' references. A caution is in order as well, however. In such an upwardly moving market, the probability of successful long trades increases even with random entries and exits. We want our systems to do well in this blind walkforward. If we are trading the order in the time series, we want clean neatly defined time horizons that stand out as sweet spots.
The 5min bars clearly do not look as strong as the 10min. The definition sharpens in the 15min plot. The 30min tradescape is even sharper as the faster action is essentially washed out and a single EM length 18 peak is present. It is simply accessed at three different bar densities. Note that while it appears the peak is shrinking with increasing bar times, on a percentage basis of price it is similar.
At this stage there are many considerations. If there are EMAs anywhere in the signaling algorithm or model, for example, the shorter EM length of the tradestation chart trading tutorial bars may offer an advantage. Let us start by getting a sense for what our average trade length looks like for this sweet spot. In general, a tradescape will cover average trade lengths up to somewhere between bars this is entity dependent.
The min panel covers up to min or about 5 days 1 week. The min panel covers up to min or 10 days 2 weeks, the min panel covers up to min or 15 days 3 weeksthe min panel covers up to 12, min or 30 days 6 weeksand the last EOD panel covers days or approximately a year.
In general, one signals in the lower half of a tradescape for practical reasons, so the first panel can be thought of as having a little over 1 day average trade duration, the second about 2. That cycle is little surprising. This is the standardized information content or time horizon used in all EM-based tradescape plots. This tradestation chart trading tutorial us an equity curve for the underlying, for the buy and hold:. Clearly gold was on an uptrend during tradestation chart trading tutorial latter portion of this five year period following tradestation chart trading tutorial financial meltdown.
We have an underlying RRt of 2. In a simple buy and hold across these five years, gold offered more than twice the reward than pain. This is clearly good. We don't expect as much benefit from a long signaling system in this already tradestation chart trading tutorial environment. The average retracement from the all-time high is low, just 7. We will design our system using this tradestation chart trading tutorial, acknowledging that the analysis period is not ideal.
We would prefer a greater mix of market behaviors, but prior to this start date, the data thins and many missing bars occur especially outside of market hours.
We will primarily rely on the blind walkforward from the very tradestation chart trading tutorial behavior of YG in the reserved year of data to assess the signaling systems we will test. At this stage, we only know that we are designing a signaling system using an analysis period consisting of a good measure of strongly uptrending behavior.
We are now looking at only the robust trend CAGR, the return we could expect from trading the order in the time series, with no regard for the pain associated with trading.