woodie’s cci

I have been spending some quality time with a new indicator (new to me anyway) called Woodie’s CCI (www.woodiescciclub.com).  Now the CCI itself(commodity channel index) is nothing new (even I had come across it before) but the work that “Woodie” aka Ken Wood has invested in turning this single indicator in what seems to be a complete trading system is rather interesting.  At the same time he seems to have created an international cult-like following for himself…but that’s another story.

The Woodie CCI indicator and its add-ons (the ‘Sidewinder’ and the ‘Chop Zone’) are available for download from http://woodiescciclub.com/forum/.  They seem to have been developed by Woddie’s disciples for a number of platforms including TS and eSignal.

A few interesting points:

• The whole trading system is based on that single indicator.  Purists even go as far as removing the sacrosanct price chart from their workspaces.  Price considerations are completely absent from the system.
• Eight key patterns/set-ups are applied to the indicator itself to identify entry and exits.  They bear exotic names such as ‘Shamu’, ‘Vegas’, and ‘Ghost’.
• Those eight set-ups either fall in a ‘trend following’ or ‘counter-trend’ category
• Woodie’s CCI is apparently applicable to any market in any timeframe

At this point I don’t know if there is any value to this indicator at all but I will spend some more time learning about the set-ups and possibly testing them via paper trading.  Time will tell if Woodie’s CCI will eventually make it into my trading system or not.

heikin-ashi paint bars

This is a modified version of the Heikin-Ashi candlestick applied to OHLC bars along with what I call trend “noise reduction”.  As you can tell by the code the Heikin-Ashi uses a modified formula to calculate OHLC:

• Average price of the current bar : xClose = (Open+High+Low+Close)/4
• Midpoint of the previous bar: xOpen = [xOpen(Previous Bar) + Close(Previous Bar)]/2 
• Highest value in the set: xHigh = Max(High, xOpen, xClose)
• Lowest value in the set: xLow = Min(Low, xOpen, xClose)

This technique is useful for making the OHLC or candlestick charts more readable so that trends and reversals can be located more easily.  It must be noted that the code that I provide in this post does not actually redraw the OHLC, it simply paints them as bullish (blue) or bearish (red) depending on the xClose and xOpen value.  This approach allows me to maintain the standard OHLC/candlestick information while adding Heikin-Ashi trend information.  In addition the code contains an additional level of noise reduction.  This modification compares current bar open-to-close range (bar body) with prior bars. If current body is within a prior bar body (you select how far back to look) then color remains the same. This is beneficial if you choose to exit a major trend move on first color change and don’t want to exit prematurely due to a minor pullback. The drawback is a possible later entry and later exit.

The screen print below shows the difference between a daily candlestick chart and its Heikin-Ashi counterpart.  I have used blue as a bullish color and kept red as a bearish color.  You can see that trend information really “jumps” at you with this transformation.

Here is the TS code: heikinashi.pdf

Also if you would like additional information on how to use an indicator like this one, you may want to check out the two following links from www.tradethemarkets.com.  They have labeled their indicator ‘TTM Trend’ but it’s Heiken-Ashi applied to OHLC as well:

http://www.tradethemarkets.com/public/1095.cfm

http://www.tradethemarkets.com/members/312.cfm

macd paint bars

Here is some TS code that provides a nice combination of OHLC bars and MACD values. The OHLC bars turn blue when the MACD is greater than its average, and vice versa they turn red in the contrary condition. Since WordPress doesn’t allow me to post ELD files, I have provided the code in .pdf (see below screenprint).

Code: paintbar-in-dl1.pdf

ideas for xmas!

For those of you who already have everything or never know what to ask from ‘Santa’, why not kill two birds with one stone and use the Amazon wish list to give Santa some ideas about the trading books that you would like to add to your library.  Create one for yourself and forward your link to Santa’s elves!

Merry Xmas!

first date with TS

I had my ‘first date’ with TradeStation last night and I have to admit that I was impressed.  Right off the bat, without having read anything about EasyLanguage, I was able to jump right in and develop two of my former eSignal indicators, namely the MACD BB and the Squeeze.  My first impressions are as follows:

• The overall TS interface is more mature and more refined than eSignal
• The EasyLanguage (EL) is very easy to learn and is also very forgiving (e.g. not case sensitive as EFS)
• EL code is ”tighter” – indeed it took a lot less code to produce the same functionality 
• EL seems to run faster
• The EL editor seems however less capable than its eSignal equivalent.  More specifically I miss the Intellisense feature.

But all in all this was a positive experience.  The only issue I ran into yesterday had to do with the TS/NinjaTrader integration.  I followed the instructions, seemed to be getting a trickle of TS data in NT but bottom line it wasn’t working correctly.  At this point I don’t know if the issues are related to the SW configuration or possibly to my HW configuration.  I will look into this and hopefully find a solution (otherwise no paper trading).

<For some reason WordPress doesn’t let me post the ELD files, contact me if you would like a copy.>

doubt

I keep coming back to the question of the trading platform of choice (for me!).  In a way I feel that I get stuck on the issue and I am wasting precious time but this is an important issue as I plan to heavily base my trading approach on backtesting, custom strategies, and eventually automated trading.  Having spent the last 15 years+ of my career in software engineering I feel that this is the edge that I can bring to my trading, hence I need to find a system that enables that edge.

I thought that I had found the least of the evils by selecting the eSignal and MB Trading combination but I am now rethinking that choice, for the following reasons:

• First and foremost, the integration between eSignal and broker platforms in general (not just MB Trading) is mediocre.  The integration is indeed limited to a set of 14 generic broker functions that expose some of the most basic order execution capabilities.  The object model is void of any money management functions for instance which would be a significant limitation in any automated trading strategy.  eSignal is apparently going to revisit the capabilities its broker interfaces in early 2008 but having worked long enough in software development, I know not to hold my breath for this.
• The eSignal community is fairly limited.  I find it difficult to find sites or blogs outside the eSignal forums that discuss EFS or offer free EFS scripts.  This combined with a fairly poor EFS documentation doesn’t provide many resources to the developer.
• eSignal doesn’t have an optimization engine for EFS strategies
• Last but not least there is the price issue.  For $175/month one would expect the best of breed but the more I learn about eSignal the less I am able to justify the cost.  And $175 is really a minimum, if I want to add any other data feed (e.g. equities, futures, market depth, news, etc.) it will cost even more.  If you compare this to the data that systems like Tradestation provide, you could easily end up with a bill of $250/month for eSignal which would be even less justifiable.

So now I am back to rethinking my whole platform selection and I am seriously reconsidering Tradestation(TS).  My earlier assessment of Tradestation focused on the following limitations:

• Broker dependence (Tradestation for everything except FX)
• The bad reputation of GAIN (although I never experienced their services myself)
• The absence of paper built-in trading capabilities
• The requirement to open a $5,000 account in addition to a $100/month fee to use TS.

So now instead of throwing the baby away with the bath water (as I feel I did last time), I will try to mitigate these issues by finding alternatives, i.e. make TS work.  At first glance it appears that the ideal fix will come from the integrated use of TS and NinjaTrader (NT).  NT through its ATI interface would indeed enable me to develop trading strategies in TS and execute them via NT to any NT-supported broker of my choice.  This would actually kill TWO birds with one stone:

1. I would no longer be broker-dependent.  NT supports brokers such as Interactive Brokers and even MB Trading, my preferred ECN/STP brokers for FX.  So this would address my concerns regarding GAIN as well as the dependence on TS as a broker.  Bottom line it opens the playing field, like eSignal did.
2. I could use the “free” NT paper trading capabilities until such time that TS offers it.

Cost-wise there are some advantages as well.

• NT is free for paper-trading, and charge $50/month for live trading.
• Assuming that I open a brokerage account with TS, the monthly fee of $100 will be waived if I trade at least 10 round-trip lots or 100 round-trip mini lots.  This means that for an active trader, TS is basically free.
• Opening a brokerage account seems a bit premature at this time given that I am still only planning to paper trade for a few months.  Therefore I don’t necessarily want $5,000 of my hard-earned cash just sitting in a brokerage account.  Here the solution could be for me to piggyback on one of my relatives’ TS brokerage account.  Indeed you can have several TS platforms linked to a TS single account.  I would just cover my own $100/month fees and “ride” my relative’s account until I am ready to trade live.
• So all in all, I am estimating the costs of TS/NT at $100/month for paper (TS fee and NT free) trading and $50/month for live trading (NT fee and TS free).  All things being compared, it could represent a saving of up to $200/month compared to eSignal for what is likely to be a superior product.

As a next step I am planning to cancel my eSignal subscription and request that my relative file what is known as a ‘Third-Party Trading Authorization’ to add me to their existing TS account.  This change of mind will have costed me  $225 ($175 for first month with eSignal + $50 for second month) but it’s better to cut this loss quickly rather than invest even more time in eSignal to eventually migrate to another system anyway.  Time will tell if this was the right decision.

bibliography

I have decided to use the blog to keep track of my bibliography and of my reading queue. I will update it on an ongoing basis.

Book Queue:

1. Trading in the Zone (ISBN 0735201447): COMPLETED
2. Currency Trading For Dummies (ISBN 0470127635 ): COMPLETED
3. Day Trading the Currency Market (ISBN 0471717533): COMPLETED
4. Trade Your Way to Financial Freedom (ISBN 007147871X): COMPLETED
5. Mastering the Trade (ISBN 0071459588): COMPLETED
6. Trading for a Living (ISBN 0471592242): COMPLETED
7. Technical Analysis for Dummies (ISBN 0764540440): COMPLETED
8. Bollinger on Bollinger Bands (ISBN 0071373683): COMPLETED
9. Foreign Currency Trading (ISBN 0786311673): COMPLETED
10. Come Into My Trading Room: A Complete Guide to Trading (ISBN 0471225347): COMPLETED
11. Fundamentals of the Futures Market (ISBN 0071361324): COMPLETED
12. Futures & Options For Dummies (ISBN 0471752835)
13. The New Science of Technical Analysis (ISBN 0471035483 )
14. Technical Analysis of the Currency Market: Classic Techniques for Profiting from Market Swings and Trader Sentiment (ISBN 0471745936) 
15. New Trading Systems and Methods (ISBN 047126847X)
16. The Encyclopedia Of Technical Market Indicators (ISBN 0070120579)
17. Elliott Wave Principle: Key To Market Behavior (ISBN 0071373683)
18. The Complete Idiot’s Guide to Daytrading Like a Pro (ISBN 1592574327)

Audio/DVD/Others Queue:

1. Reminiscence of a Stock Operator (Edwin Lefevre): COMPLETED
2. How to Build Wealth like Warren Buffet (Nightingale Conant, Audio): COMPLETED
3. Candle Chart Charting Basics (Steve Nison, Audio): COMPLETED
4. Profiting in Forex (Steve Nison, DVD): COMPLETED
5. Market Wizards (Jack Schwager, 12 CD series): COMPLETED
6. Options University (12 Week Technical Analysis Training Program): IN PROCESS (1/12)
7. The profitable Trading Attitude (Toni Turner, DVD)
8. How to Think Like a Professional Trader (Mark Douglas, DVD)
9. Profiting with Japanese Candlestick Charts (Steve Nison, DVD)
10. OptionsUniversity, Seminar at Sea (DVD)
11. Becoming a Disciplined Trader (Ari Kiev, DVD)
12. 12 Simple Indicators that Really Work (Mark Larson, DVD)

cost of education (< cost of ignorance)

So far my approach to learning the craft of trading has been to focus on the following areas:

• Read, read, and read some more (books, blogs, web sites, magazines, product reviews, etc.)
• Watch training DVDs or listen to audio seminars
• Experiment with different charting and analysis (C&A) tools such as eSignal, TradeStation, MetaTrader, and DealBook. I speak about my requirements for such systems in an earlier post. Here I have settled (for the time being) on eSignal. I say ‘for the time being’ because my frugal sense sometimes gets stuck on the $175 monthly fee for this system. Yet I still have to find another system that offers the same independence (not tied to any specific broker), flexibility (applicable to all instruments), and capability (charting and scripting language) for a lesser price. So I am keeping my eyes open but so far I am confident about my choice.
• Open demo accounts with different brokers such as MB Trading, GFT, Oanda, etc to a) familiarize myself with the execution of orders, b) the capabilities of their plaftorms and/or their integration potential with C&A tools, c) their service and set up, and d) paper trade.

So far I have stayed away from going to seminars, trade shows, or other forms of brain-washing endoctrinations. I have tried to minimize my costs as much as possible by buying used books on the Amazon network, and borrowing training materials from others. So far my costs have been:

• Monthly fee for eSignal ($175 including tool and data feed) which will amount of $2,100/year
• Annual subscription to Active Trader Magazine ($55)
• Books: to date my total bill comes to $262 for 11 well known titles or an average of about $24/book which is not bad and shows the value of tapping into Amazon’s used book inventory. Obvioulsy this bill is going to go up as I see reading as an essential part of my trading education.
• By far my biggest ‘education’ expense has been a $1,500 loss on an option play. The play was brought to me by a relative. Such a play was for me a first (and a last). The lesson was expensive but it was an important one. I will remember it. Talk about being penny-wise and pound foolish!

I think that it is important to keep track of these costs, or I should say investments. Such investments are indeed all part of the P&L and should be factored in when calculating the profitability (or lack thereof) of a trading business.

macd bb trend dots

Here is another T3 Fib ProTrader indicator that I developed in eSignal.  This one is called ‘MACD BB Trend dots” and it goes hand in hand with the MACD BB indicator that I posted previously.  Quite simply it plots a cyan diamond on the price chart when the MACD crosses over the upper BB, and a magenta diamond when the MACD crosses below the lower BB (Nex Gen uses blue and red dots instead but I was getting tired of always using the same colors).  Just make sure that your MACD BB and MACD BB trend dots both use the same parameters.
Ideally I would have developed a single indicator that offered both the MACD BBs and the MACD BB trend dots but unfortunately eSignal does not allow control of both the price and indicator panes within a single EFS script, hence the need to develop two separate indicators.  To see how to use this indicator, just take a look at what Nex Gen has to see about it here.   Enjoy this other freebie!

Source Code : dl_macd_tp.pdf

macd bb’s

Here is another one of my eSignal creations. This mimics one of the T-3 Fibs ProTrader (http://www.nss-t3.com) indicators called the MACD BB. This is basically a Bollinger Band study of the MACD with a few aesthetic upgrades:

• The MACD is plotted as colorful circles where MACD up ticks are shown in green, down ticks in red, and constants in white.
• The zero line changes color depending on whether MACD is positive or negative

Nex Gen offers some interesting interpretations of that indicator in their user guide or better yet check out their video. So instead of repeating them in this blog, I invite you to review their document. As far as I am concerned this seems like a nice thick layer of lipstick on a basic study but it doesn’t seem to bother Nex Gen who charges $15K for the package. At first glance, most of their indicators (like this MACD BB look alike) are very easy to replicate. The only exception may be their algorithm to identify Fib confluence areas. I’ll let you be the judge.

Source Code: dl_macd_bb.pdf