A Bar Scoring System – inspired by Keith Fitschen

In Keith’s wonderful book, “Building Reliable Trading Sytems”, he reveals several algorithms that classify an instruments’ movement potential.  In the part of the book that is titled Scoring by a Bar Type Criterion, he describes eight different two-day patterns that involve 3 different criteriaEight different Bar-Types

He looks at the relationship between today’s open and today’s close, today’s close and yesterday’s close, and today’s close in terms of the day’s range.  Bar-Types 1 to 4 all have the close of today >= close of yesterday.  Bar-Types 5 to 8 have close of today < close of yesterday.

I wanted to program this into my TradeStation and do some research to see if the concept is valid.  In his book, Keith tested a lot of different stocks and commodities.  In this post, I just test the ES, US, and Beans.  This form of research can be used to enhance an existing entry technique.

Here is how I defined the eight different bar types:

array : barTypeArray[8](false); 

midRange = (h + l)/2;

barTypeArray[0] = c >= c[1] and c > o and c >= midRange;
barTypeArray[1] = c >= c[1] and c > o and c <  midRange;
barTypeArray[2] = c >= c[1] and c < o and c >= midRange;
barTypeArray[3] = c >= c[1] and c < o and c <  midRange;
barTypeArray[4] = c <  c[1] and c > o and c >= midRange;
barTypeArray[5] = c <  c[1] and c > o and c <  midRange;
barTypeArray[6] = c <  c[1] and c < o and c >= midRange;
barTypeArray[7] = c <  c[1] and c < o and c <= midRange;
Defining Eight Different Bar Types

I used a brute force approach by creating an 8-element array of boolean values.  Remember EasyLanguage uses a 0 index.  If the two -day pattern matches one of the eight criteria I assign the element a true value.  If it doesn’t match then a false value is assigned.  I use an input value to tell the computer which pattern I am looking for.  If I choose Bar-Type[0] and there is a true value in that array element then I take a trade.   By providing this input I can optimize over all the different Bar-Types.

Input : 
	BarTypeNumber(0), // which bar type
	buyOrSell(1),   //1 to buy 2 to sell
	numDaysToHold(2); //how many days to hold position




For cnt = 0 to 7 //remember to start at 0
Begin
	If barTypeArray[cnt] = true then whichBarType = cnt;
end;

If whichBarType = BarTypeNumber then 
begin
 	if buyOrSell = 1 then buy this bar on close;
	if buyOrSell = 2 then sellshort this bar on close;
end;
Loop Thru Array to find Bar Type

Here are some results of looping through all eight Bar-Types, Buy and Sell, and holding from 1 to 5 days.

ES – ten – year results – remember these are hypothetical results with no commission or slippage.

Here’s what the equity curve looks like.   Wild swings lately!!

Beans:

Bonds

Keith was right – look at the Bar Category that bubbled to the top every time – the most counter-trend pattern.  My Bar-Type Number 7  is the same as Keith’s 8.  Here is the code in its entirety.

{Bar Scoring by Keith Fitschen
 from his book "Building Reliable Trading Systems" 2013 Wiley}
 
Input : BarTypeNumber(0),
	 buyOrSell(1),
	 numDaysToHold(2);
	 
vars: midRange(0);
array : barTypeArray[8](false); 

midRange = (h + l)/2;

barTypeArray[0] = c >= c[1] and c > o and c >= midRange;
barTypeArray[1] = c >= c[1] and c > o and c <  midRange;
barTypeArray[2] = c >= c[1] and c < o and c >= midRange;
barTypeArray[3] = c >= c[1] and c < o and c <  midRange;
barTypeArray[4] = c <  c[1] and c > o and c >= midRange;
barTypeArray[5] = c <  c[1] and c > o and c <  midRange;
barTypeArray[6] = c <  c[1] and c < o and c >= midRange;
barTypeArray[7] = c <  c[1] and c < o and c <= midRange;

vars: whichBarType(0),cnt(0);

For cnt = 0 to 7
Begin
	If barTypeArray[cnt] = true then whichBarType = cnt;
end;

If whichBarType = BarTypeNumber then 
begin
 	if buyOrSell = 1 then buy this bar on close;
	if buyOrSell = 2 then sellshort this bar on close;
end;

If barsSinceEntry = numDaysToHold then
begin
	If marketPosition = 1 then sell this bar on close;
	If marketPosition =-1 then buytocover this bar on close;
end;
Bar Scoring Example

Keith’s book is very well researched and written.  Pick one up if you can find one under $500.  I am not kidding.  Check out Amazon.

 

 

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