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;

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;

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;

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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