July 2011

TRADESTATION: COLOR-BASED SYSTEM

In “A Color-Based System For Short-Term Trading” in this issue, author Edgar Kraut describes a swing-trading system that utilizes the color of volume bars. It is based on the relationship of the current bar’s close and volume as compared to the close and volume 10 bars ago.

We have prepared indicator code (_RainbowVolume_Ind) that plots the volume and is colored based on the criteria specified in Kraut’s article, and a strategy (_RainbowVolume_Strat), which enters on the next bar if the current bar is a green or blue bar. The exit is a percentage trail of the highest bar close since entry.

To download the EasyLanguage code for this indicator and strategy, go to the TradeStation and EasyLanguage support forum (https://www.tradestation.com/Discussions/forum.aspx?Forum_ID=213) and search for the file “_RainbowVolume.eld.” The code is also shown below.

A sample chart is shown in Figure 1.

Figure 1: TRADESTATION, Color-Based System. Here is a daily chart of the SPY with Kraut’s indicator and strategy plotted. Entries are on the next bar following a green or blue volume bar, and the exit is a trailing stop based on a percentage amount below the highest bar close since entry.

EASYLANGUAGE CODE FOR COLOR-BASED SYSTEM

_RainbowVolume_Ind (Indicator)

{ TASC Article, July, 2011 }
{ A Color-Based System For Short-Term Trading }

inputs:
	NumBars( 10 ) ;
	
variables:
	Orange( 0 ),
	PlotColor( 0 ),
	MyVol( 0 ) ;

if CurrentBar = 1 then
	Orange = RGB( 255, 127, 0 ) ;
		
if BarType >= 2 and BarType < 5 then 
	MyVol = Volume
else 
	MyVol = Ticks ;

if C > C[NumBars] and MyVol > MyVol[NumBars] then
	PlotColor = Green
else if C > C[NumBars] and MyVol < MyVol[NumBars] then
	PlotColor = Blue
else if C < C[NumBars] and MyVol < MyVol[NumBars] then
	PlotColor = Orange
else if C < C[NumBars] and MyVol > MyVol[NumBars] then
	PlotColor = Red ;

Plot1( MyVol, "Volume", PlotColor ) ;


_RainbowVolume_Strat (Strategy)

{ TASC Article, July, 2011 }
{ A Color-Based System For Short-Term Trading }

inputs:
	LookBackBars( 10 ),
	TrailStopPct( 1 ) ; { Enter in percentage points }
	
variables:
	MyVol( 0 ),
	EP( 0 ),
	StopCalc( 0 ),
	LongStop( 0 ),
	GreenBar( false ),
	BlueBar( false ) ;

if BarType >= 2 and BarType < 5 then 
	MyVol = Volume
else 
	MyVol = Ticks ;

EP = EntryPrice ;
GreenBar = C > C[LookBackBars] and 
 MyVol > MyVol[LookBackBars] ;
BlueBar = C > C[LookBackBars] and 
 MyVol < MyVol[LookBackBars] ;

{ Go long on Green or Blue bar }
if GreenBar or BlueBar then
	Buy ( "Rainbow LE" ) next bar at market ;

StopCalc = C - C * TrailStopPct * 0.01 ;
	
{ Percent Trailing Exit }
if EP > 0 then { a position exists }
	begin
	LongStop = MaxList( StopCalc, LongStop ) ;
	Sell ( "Rainbow LX" ) next bar LongStop stop ;
	end
else
	LongStop = 0 ;

This article is for informational purposes. No type of trading or investment recommendation, advice, or strategy is being made, given, or in any manner provided by TradeStation Securities or its affiliates.

—Chris Imhof
TradeStation Securities, Inc.
A subsidiary of TradeStation Group, Inc.
www.TradeStation.com

BACK TO LIST

BLOOMBERG: COLOR-BASED SYSTEM

Figure 3 shows the S&P 500 futures with volume bars underneath that are colored according to the conditions detailed in Edgar Kraut’s article in this issue, “A Color-Based System For Short-Term Trading.”

Many technicians look for volume spikes to accompany breakouts and breakdowns as additional confirmation of a move. By coloring the volume bars on this chart as described by Kraut, we can see that when the S&P 500 futures broke through resistance points established by recent highs, the condition was confirmed by green volume bars that quickly establish the area where volume buildup corresponded to the upside breakout in the market in both September and December 2010. Both of these moves followed consolidation periods, and neither was contradicted by a fall below the 1% stop before profits could be locked in.

Using the CS.Net framework within the Stdy<GO> function on the Bloomberg Terminal, C# or Visual Basic code can be written to display the colored volume bars. The C# code for this indicator is shown here. All Bloomberg code contributions to S&C’s Traders’ Tips column can also be found in the sample files provided with regular Sdk updates, and the studies will be included in the Bloomberg global study list.

Figure 3: BLOOMBERG, Color-Based System. This chart shows the active futures continuous chart for the S&P 500. After almost four months of consolidation, the S&P 500 broke out to the upside in September 2010, with a confirmation from volume, particularly when analyzed using the additional conditions we have provided. There was a breakout under similar volume conditions in December 2010 after a shorter consolidation period during the overall bullish trend.

Bloomberg code for color-based system: 

using System;
using System.Collections.Generic;
using System.Text;
using System.Drawing;
using Bloomberg.Study.API;
using Bloomberg.Study.CoreAPI;
using Bloomberg.Study.Util;
using Bloomberg.Study.TA;
using Bloomberg.Math;

namespace Color_Volume_Bars
{
    
    public partial class ColorVolumeBars
    {
        // The author specifies a 2 week look back (10 bars). 
 // Instead we have created a user definable input parameter
        public StudyIntegerProperty Period = new StudyIntegerProperty(10);
        
        private void Initialize()
        {
            // A Study Panel is added below the price panel for the Volume
            Panels.Add("VolumePanel", new StudyPanel());

            Output.Add("VolumeData", new TimeSeries());
            StudyLine volumeLine = new StudyLine("VolumeData");
            volumeLine.Style = LineStyle.Histogram;
            Panels["VolumePanel"].Visuals.Add("VolumeData", volumeLine);

// PaintBar marker is used in the Study Panel on Volume data as it would be on Price data
            Output.Add("PaintGreen", new TimeSeries());
            StudySignal pntGreen = new StudySignal("PaintGreen");
            pntGreen.Marker = new PaintBar(Color.Green);
            Panels["VolumePanel"].Visuals.Add("PaintGreen", pntGreen);

            Output.Add("PaintBlue", new TimeSeries());
            StudySignal pntBlue = new StudySignal("PaintBlue");
            pntBlue.Marker = new PaintBar(Color.Blue);
            Panels["VolumePanel"].Visuals.Add("PaintBlue", pntBlue);

            Output.Add("PaintOrange", new TimeSeries());
            StudySignal pntOrange = new StudySignal("PaintOrange");
            pntOrange.Marker = new PaintBar(Color.Orange);
            Panels["VolumePanel"].Visuals.Add("PaintOrange", pntOrange);

            Output.Add("PaintRed", new TimeSeries());
            StudySignal pntRed = new StudySignal("PaintRed");
            pntRed.Marker = new PaintBar(Color.Red);
            Panels["VolumePanel"].Visuals.Add("PaintRed", pntRed);

            // This adds a data field 'Volume'
            // Other Bloomberg data fields can similarly be added
            DataField volumeData = new DataField("PX_VOLUME"); 
            Input.Add("Volume", volumeData);                   
        }

        
        public override void Calculate()
        {
            TimeSeries close = Input.Close;
            TimeSeries volume = Input["Volume"];
            TimeSeries closesago = close.ShiftRight(Period.Value);
            TimeSeries volumeago = volume.ShiftRight(Period.Value);            

            TimeSeries Green = new TimeSeries((close > closesago).And(volume > volumeago));
            TimeSeries Blue = new TimeSeries((close > closesago).And(volume < volumeago));
            TimeSeries Orange = new TimeSeries((close < closesago).And(volume < volumeago));
            TimeSeries Red = new TimeSeries((close < closesago).And(volume > volumeago));

            Output.Update("VolumeData", volume);
            Output.Update("PaintGreen", Green);
            Output.Update("PaintBlue", Blue);
            Output.Update("PaintOrange", Orange);
            Output.Update("PaintRed", Red);
        }

    }

}

—Bill Sindel
Bloomberg, LP
wsindel@bloomberg.net
www.bloomberg.com/professional

BACK TO LIST

eSIGNAL: COLOR-BASED SYSTEM

For this month’s Traders’ Tip, we’ve provided the formulas Kraut_ColoredBars.efs, Kraut_ColoredBarsInd.efs, and Kraut_ColoredBarsIndWL.efs, based on Edgar Kraut’s article in this issue, “A Color-Based System For Short-Term Trading.”

All studies contain a formula parameter to set the lookback periods, which may be configured through the “Edit Chart” window. The Kraut_ColoredBars.efs formula displays the price chart (Figure 5) and allows backtesting. This study also contains one additional formula parameter to set the trailing percent. The Kraut_ColoredBarsInd.efs formula displays the histogram indicator. The watchlist study — Kraut_ColoredBarsIndWL.efs (see Figure 6) — displays all the values and columns from the Excel example given in Kraut’s article.

Figure 5: eSIGNAL, Color-Based System

Figure 6: eSIGNAL, WATCHLIST

To discuss these studies or download complete copies of the formulas, visit the Efs Library Discussion Board forum under the Forums link from the support menu at www.esignal.com or visit our Efs KnowledgeBase at www.esignal.com/support/kb/efs/. The eSignal formula scripts (Efs) are also shown here.

Kraut_ColoredBars.efs 

/*********************************
Provided By:  
    Interactive Data Corporation (Copyright © 2010) 
    All rights reserved. This sample eSignal Formula Script (EFS)
    is for educational purposes only. Interactive Data Corporation
    reserves the right to modify and overwrite this EFS file with 
    each new release. 
	
Description:        
    A Color-Based System For Short-Term Trading For WL
 
Version:            1.0  16/05/2011
Formula Parameters:                     Default:
Lookback                                10
Trailing Percent                        1
Notes:
    The related article is copyrighted material. If you are not
    a subscriber of Stocks & Commodities, please visit www.traders.com.
**********************************/
var fpArray = new Array();
var bVersion = null;
function preMain()
{
    setPriceStudy(true);
    
    var x=0;
    fpArray[x] = new FunctionParameter("gLookBack", FunctionParameter.NUMBER);
    with(fpArray[x++])
    {
	setName("Lookback");
	setLowerLimit(1);
        setDefault(10);
    } 
    fpArray[x] = new FunctionParameter("gTrailing", FunctionParameter.NUMBER);
    with(fpArray[x++])
    {
	setName("Trailing Percent");
	setLowerLimit(1);
	setUpperLimit(100);
        setDefault(1);
    }    
}
var bInit = false;
var xVol = null;
var xCls = null;
var xDay = null;
var xMonth = null;
var xYear = null;
var stop = 0; 
function main(gLookBack, gTrailing)
{
    if (bVersion == null) bVersion = verify();
    if (bVersion == false) return;     
    if  ( getCurrentBarIndex() == 0 ) return ;
    
    if (!bInit)
    {
        xCls = close();
        xVol = volume();  
        bInit = true;
    }    
    
    var vCls = xCls.getValue(0);
    var vVol = xVol.getValue(0);
    var vCls1 = xCls.getValue(-1);
    var vClsPrev = xCls.getValue(-gLookBack);
    var vVolPrev = xVol.getValue(-gLookBack);
    if ( vClsPrev == null ) return;
    var cond = 0;
    if ( vCls >= vClsPrev && vVol >= vVolPrev ) 
    {
        setBarFgColor(Color.green); 
        cond = 0;
    }
    if ( vCls >= vClsPrev && vVol <= vVolPrev ) 
    {
        setBarFgColor(Color.blue); 
        cond = 1;
    } 
    if ( vCls <= vClsPrev && vVol <= vVolPrev ) 
    {
        setBarFgColor(Color.RGB(255, 106, 0)); 
        cond = 2;
    };
    if ( vCls <= vClsPrev && vVol >= vVolPrev ) 
    {
        setBarFgColor(Color.red); 
        cond = 3;
    };  
    
    if ( Strategy.isLong() )
    {
            if ( vCls <= stop ) 
            {  
                Strategy.doSell( "Close Long", Strategy.CLOSE, Strategy.THISBAR );
                stop = 0;
            }
            else 
            {    
                if (vCls > vCls1)  stop = vCls * (1- gTrailing / 100); 
            }    
    }
    else
    {
            if ( cond == 0 || cond == 1  )  Strategy.doLong("Entry Long", Strategy.CLOSE, Strategy.THISBAR);
    }
    
    if ( Strategy.isLong() ) setBarBgColor (Color.darkgreen);
}

function verify() {
    var b = false;
    if (getBuildNumber() < 779) {
        drawTextAbsolute(5, 35, "This study requires version 8.0 or later.", 
            Color.white, Color.blue, Text.RELATIVETOBOTTOM|Text.RELATIVETOLEFT|Text.BOLD|Text.LEFT,
            null, 13, "error");
        drawTextAbsolute(5, 20, "Click HERE to upgrade.@URL=https://www.esignal.com/download/default.asp", 
            Color.white, Color.blue, Text.RELATIVETOBOTTOM|Text.RELATIVETOLEFT|Text.BOLD|Text.LEFT,
            null, 13, "upgrade");
        return b;
    } else {
        b = true;
    }
    return b;
}


Kraut_ColoredBarsInd.efs

/*********************************
Provided By:  
    Interactive Data Corporation (Copyright © 2010) 
    All rights reserved. This sample eSignal Formula Script (EFS)
    is for educational purposes only. Interactive Data Corporation
    reserves the right to modify and overwrite this EFS file with 
    each new release. 
	
Description:        
    A Color-Based Indicator For Short-Term Trading
 
Version:            1.0  16/05/2011

Formula Parameters:                     Default:
Lookback                                10      


Notes:
    The related article is copyrighted material. If you are not
    a subscriber of Stocks & Commodities, please visit www.traders.com.

**********************************/
 
var fpArray = new Array();

var bVersion = null;

function preMain()

{

    setCursorLabelName("Price Zone Analyzer", 0);

    setPlotType(PLOTTYPE_HISTOGRAM,0);

    

    var x=0;
    fpArray[x] = new FunctionParameter("gLookBack", FunctionParameter.NUMBER);
    with(fpArray[x++])
    {
	setName("Lookback");
	setLowerLimit(1);
        setDefault(10);
    }

}


var bInit = false;
var xVol = null;
var xCls = null;
function main(gLookBack)
{
    if (bVersion == null) bVersion = verify();
    if (bVersion == false) return;     
        
    if (!bInit)
    {
        xCls = close();
        xVol = volume();    
        bInit = true;
    }
    var vCls = xCls.getValue(0);
    var vVol = xVol.getValue(0);
    var vClsPrev = xCls.getValue(-gLookBack);
    var vVolPrev = xVol.getValue(-gLookBack);
    if ( vClsPrev == null ) return;
    
    if ( vCls > vClsPrev && vVol > vVolPrev ) setBarFgColor(Color.green);
    if ( vCls > vClsPrev && vVol < vVolPrev ) setBarFgColor(Color.blue);  
    if ( vCls < vClsPrev && vVol < vVolPrev ) setBarFgColor(Color.RGB(255, 106, 0));
    if ( vCls < vClsPrev && vVol > vVolPrev ) setBarFgColor(Color.red);  
        
    return vVol;
}
function verify() {
    var b = false;
    if (getBuildNumber() < 779) {
        drawTextAbsolute(5, 35, "This study requires version 8.0 or later.", 
            Color.white, Color.blue, Text.RELATIVETOBOTTOM|Text.RELATIVETOLEFT|Text.BOLD|Text.LEFT,
            null, 13, "error");
        drawTextAbsolute(5, 20, "Click HERE to upgrade.@URL=https://www.esignal.com/download/default.asp", 
            Color.white, Color.blue, Text.RELATIVETOBOTTOM|Text.RELATIVETOLEFT|Text.BOLD|Text.LEFT,
            null, 13, "upgrade");
        return b;
    } else {
        b = true;
    }
    return b;
}


Kraut_ColoredBarsIndWL.efs

/*********************************
Provided By:  
    Interactive Data Corporation (Copyright © 2010) 
    All rights reserved. This sample eSignal Formula Script (EFS)
    is for educational purposes only. Interactive Data Corporation
    reserves the right to modify and overwrite this EFS file with 
    each new release. 
	
Description:        
    A Color-Based System For Short-Term Trading For WL
 
Version:            1.0  16/05/2011
Formula Parameters:                     Default:
Lookback                                10
Notes:
    The related article is copyrighted material. If you are not
    a subscriber of Stocks & Commodities, please visit www.traders.com.
**********************************/
var fpArray = new Array();
var bVersion = null;
function preMain()
{
    setCursorLabelName("Date P2", 0);
    setCursorLabelName("P2", 1);
    setCursorLabelName("Vol2", 2);
    setCursorLabelName("Date P1", 3);
    setCursorLabelName("P1", 4);
    setCursorLabelName("Vol1", 5);
    setCursorLabelName("Price Delta, %", 6);
    setCursorLabelName("Vol Delta, %", 7);
    setCursorLabelName("Color", 8);
    
    
    var x=0;
    fpArray[x] = new FunctionParameter("gLookback", FunctionParameter.NUMBER);
    with(fpArray[x++])
    {
	setName("Lookback");
	setLowerLimit(1);
        setDefault(10);
    }    
}
var bInit = false;
var xVol = null;
var xCls = null;
var xDay = null;
var xMonth = null;
var xYear = null;
function main(gLookback)
{
    if (bVersion == null) bVersion = verify();
    if (bVersion == false) return;     
    if (!bInit)
    {
        xCls = close();
        xVol = volume();  
        xDay = day();
        xMonth = month();
        xYear = year();
        
        bInit = true;
    }    
    
    var vCls = xCls.getValue(0);
    var vVol = xVol.getValue(0);
    var vClsPrev = xCls.getValue(-gLookback);
    var vVolPrev = xVol.getValue(-gLookback);
    if ( vClsPrev == null ) return;
    var vP2Day = ""+xMonth.getValue(0)+"/"+xDay.getValue(0)+"/"+xYear.getValue(0);
    var vP1Day = ""+xMonth.getValue(-gLookback)+"/"+xDay.getValue(-gLookback)+"/"+xYear.getValue(-gLookback);
    var vPriceDelta = 100 * Math.abs( vCls - vClsPrev ) / vCls;
    var vVolDelta = 100 * Math.abs ( vVol - vVolPrev ) / vVol;
    var vColor = "na";
    if ( vCls >= vClsPrev && vVol >= vVolPrev ) 
    {
        setBarBgColor(Color.green,8); 
        vColor = "GREEN"
    };
    if ( vCls >= vClsPrev && vVol <= vVolPrev ) 
    {
        setBarBgColor(Color.blue, 8); 
        vColor = "BLUE"
    };  
    if ( vCls <= vClsPrev && vVol <= vVolPrev ) 
    {
        setBarBgColor(Color.RGB(255, 106, 0), 8); 
        vColor = "ORANGE"
    };
    if ( vCls <= vClsPrev && vVol >= vVolPrev ) 
    {
        setBarBgColor(Color.red,8); 
        vColor = "RED"
    };  
        
    return new Array (vP2Day, vCls, vVol, vP1Day, vClsPrev, vVolPrev, vPriceDelta, vVolDelta, vColor);
    
}
function verify() {
    var b = false;
    if (getBuildNumber() < 779) {
        drawTextAbsolute(5, 35, "This study requires version 8.0 or later.", 
            Color.white, Color.blue, Text.RELATIVETOBOTTOM|Text.RELATIVETOLEFT|Text.BOLD|Text.LEFT,
            null, 13, "error");
        drawTextAbsolute(5, 20, "Click HERE to upgrade.@URL=https://www.esignal.com/download/default.asp", 
            Color.white, Color.blue, Text.RELATIVETOBOTTOM|Text.RELATIVETOLEFT|Text.BOLD|Text.LEFT,
            null, 13, "upgrade");
        return b;
    } else {
        b = true;
    }
    return b;
}

—Jason Keck
Interactive Data Desktop Solutions
800 815-8256, www.eSignal.com/support/

BACK TO LIST

WEALTH-LAB: COLOR-BASED SYSTEM

In his article in this issue, author Edgar Kraut presents a simple system that consists of two rules for taking long positions. Formally, it does not share traits of classic swing-trading systems (as the author states in the article) except for its sensitive 1% trailing stop, so with its trend condition rule and a volume confirmation rule seeking to identify and hold a rising stock for a short period of time, we would rather classify it as pure momentum trading.

Our C# version of the system allows Wealth-Lab 6 users to easily change the lookback and exit parameters by dragging the parameter sliders in the lower-left corner of Wealth-Lab’s main workspace. We replaced the default trailing exit with a combination of a profit target and a stop-loss, and made the system exit on red and orange bars. For traders willing to tweak the rules further, here’s a very simple trend-identification idea of the same kind to go along with the volume confirmation rule:

1. Bullish trend starts after x consecutive closes above the trailing close from y days ago,
2. Bearish trend starts after x consecutive closes below the trailing close from y days ago.

C# Code:

using System;
using System.Collections.Generic;
using System.Text;
using System.Drawing;
using WealthLab;
using WealthLab.Indicators;

namespace WealthLab.Strategies
{
	public class ColorBased : WealthScript
	{
		private StrategyParameter paramLookback;
		private StrategyParameter paramSL;
		private StrategyParameter paramPT;
		
		public ColorBased()
		{
			paramLookback = CreateParameter("Lookback", 20, 2, 100, 1);
			paramSL = CreateParameter("Stop %", 4, 1, 10, 1);
			paramPT = CreateParameter("Target %", 4, 1, 20, 1);
		}
		
		private Color color( int bar, int lookback )
		{
			Color c = Color.Transparent;
			
			if( Bars.Count > lookback )
			{			
				int b = bar-lookback;
			
				bool green = (Close[bar] > Close[b]) && (Volume[bar] > Volume[b]);
				bool blue = (Close[bar] > Close[b]) && (Volume[bar] <= Volume[b]);
				bool orange = (Close[bar] < Close[b]) && (Volume[bar] < Volume[b]);
				bool red = (Close[bar] < Close[b]) && (Volume[bar] >= Volume[b]);

				if( green ) c = Color.Green;
				if( blue ) c = Color.Blue;
				if( orange ) c = Color.Orange;
				if( red ) c = Color.Red;
			}
		
			return c;
		}
		
		protected override void Execute()
		{
			int lookback = paramLookback.ValueInt;
			double SL = paramSL.Value;
			double PT = paramPT.Value;
			
			for(int bar = lookback; bar < Bars.Count; bar++)
			{
				Color c = color(bar,lookback);
				SetSeriesBarColor( bar, Volume, c );
				SetBarColor( bar, c );
				
				if (IsLastPositionActive)
				{
					Position p = LastPosition;
					double Stop = p.EntryPrice * (1 - SL / 100.0d);
					double Target = p.EntryPrice * (1 + PT / 100.0d);
					
					if( c == Color.Red || c == Color.Orange )
						SellAtMarket(bar+1, p, c.ToString() );
					else
						if( !SellAtStop(bar + 1, p, Stop, "SL") )
						SellAtLimit(bar + 1, p, Target, "TP");
				}
				else
				{
					if( c == Color.Green || c == Color.Blue )
						BuyAtMarket( bar+1, c.ToString() );
				}
			}
		}
	}
}

A sample chart is shown in Figure 8.

Dowload the code as a downloadable file here: WealthLab_ColorBasedSystem_July2011.odt

Figure 8: WEALTH-LAB, Color-Based System. This sample Wealth-Lab Developer 6.2 chart shows the color-based system applied to a daily chart of SPDR S&P 500 (SPY).

—Eugene/Robert Sucher
www.wealth-lab.com

BACK TO LIST

AIQ: COLOR-BASED SYSTEM

Here is the Aiq code based on Edgar Kraut’s article in this issue, “A Color-Based System For Short-Term Trading.” The code is also provided at the websites noted below. I coded the color indicators and three systems that use the indicators. Two of the three systems are discussed here.

I ran backtests using the Aiq Portfolio Manager module from 1/1/1998 to 5/13/2011 trading the Nasdaq 100 list of stocks. In Figure 10, I show the test results of simulated trading using the system that was proposed in Kraut’s article for trading the Spy with the following capitalization parameters:

1. Maximum positions per day = 3
2. Maximum total positions allowed = 10
3. Choose candidates using highest volume on the day of the signal
4. Size each position at 10% of total account equity recomputed every day.

Figure 10: AIQ SYSTEMS, Kraut’s Color-Based System. Here is a sample equity curve for Edgar Kraut’s system trading the NASDAQ 100 list of stocks compared to the S&P 500 index over the test period 1/1/98 to 5/13/11. This original system uses a 1% trailing stop as the only exit.

For the test period, the original system using the 1% trailing stop as the only exit showed an average annual return of 4.95% with a maximum drawdown of 78.52% on 10/9/2002.

Since the drawdown of 78.52% on the original system was more than most traders could tolerate, I added trend and market trend filters and also changed the buy rules and exit rules as follows:

• Buy if there is a green or blue bar today and if yesterday there were six consecutive bars of orange or red color and the 200-bar simple moving average of both the stock and the S&P 500 index are higher than they were 10 bars ago.
• Exit if there are four consecutive bars of orange or red.

All trades for both systems are executed at the next open after a trade signal occurs. A commission of $0.01 per share round-turn was used. The same capitalization parameters were used in testing both the modified system and the original system.

In Figure 11, I show the test results of simulated trading on the Nasdaq 100 list of stocks using this modified system. For the test period, this modified system showed an average annual return of 20.24% with a maximum drawdown of 31.55% on 5/25/2000.

Figure 11: AIQ SYSTEMS, MODIFIED System equity curve. Here is a sample equity curve for my modified system trading the NASDAQ 100 list of stocks over the test period 1/1/98 to 5/31/11 compared to the S&P 500 index.

In Figure 12, I show the color-based indicators applied to both the price and volume on a chart of Adsk. The arrows on the chart also show a sample trade from the modified system.

Figure 12: AIQ SYSTEMS, MODIFIED System example. Shown here is a chart of ADSK with color studies and arrows showing sample trades from the modified system.

The code and Eds file can be downloaded from www.TradersEdgeSystems.com/traderstips.htm.

AIQ code:

! A COLOR-BASED SYSTEM FOR SHORT-TERM TRADING
! Author: Edgar Kraut, TASC July 2011
! Coded by: Richard Denning 5/14/11
! www.TradersEdgeSystems.com

! ABBREVIATIONS:
C is [close].
C10 is valresult(C,10).
V is [volume].
V10 is valresult(V,10).

! FOR COLOR BARS:
Green if C > C10 and V > V10.
Blue if C > C10 and V < V10.
Orange if C < C10 and V < V10.
Red if C < C10 and V > V10.

! FOR UDF IN REPORT COLUMN:
Signal is iff(Green,"Green",iff(Blue,"Blue",
	iff(Orange,"Orange",iff(Red,"Red","")))).

! TRADING SYSTEMS:
! ORIGINAL SYSTEM: 
Buy if (Green or Blue) .
! Use built-in trailing stop set to 99 for exits

! FIRST MODIFICATION (NOT USED):
Buy2 if (Green or Blue) 
	and countof((Red or Orange),6,1)=6.

! SECOND MODIFICATION (FINAL SYSTEM):
SMA is simpleavg(C,200).
SPXsma is TickerUDF("SPX",SMA).
Buy3 if (Green or Blue) 
	and countof((Red or Orange),6,1)=6 
	and SMA > valresult(SMA,10) 
	and SPXsma > valresult(SPXsma,10).
	
Sell2 if countof((Red or Orange),4)=4.

—Richard Denning
info@TradersEdgeSystems.com
for AIQ Systems

BACK TO LIST

STRATASEARCH: COLOR-BASED SYSTEM

When we first read “A Color-Based System For Short-Term Trading” by Edgar Kraut, our initial thoughts were that the author had found the holy grail. Nearly 98% of all long positions profitable since 2002? A minimum of 58% profit per year? A bust year of 2008 still gaining a profit of 220% on long positions? Even without commissions or spreads, these are some stellar results. So our goal was to not only provide this code to our users, but to confirm this incredible system performance.

In an attempt to duplicate the author’s tests, we created a system that entered long positions on blue or green bars, and sold based on a good-till-canceled trailing stop of 1%. But running this system against Spy from 2002 to 2010 didn’t produce anywhere near the stunning results for us. In fact, our tests produced only 35% profitable trades, with an average annual return of -3%. (See Figure 17.)

Figure 17: STRATASEARCH, COLOR-BASED SYSTEM. The equity performance of Kraut’s color-based system (in yellow) didn’t match the performance of buy and hold (white) in our tests.

Using the author’s intended platform of MetaStock, we were able to confirm the article’s results. However, it appears that the positive results can be largely attributed to MetaStock’s trailing stop, which automatically exits positions a small fraction away from the day’s high price. Some traders might question the ability to sell so close to the high price in actual trading, since the high price isn’t actually known until the trading day is over. But during a backtest, it certainly does create some stunning paper trades.

Despite not being the holy grail after all, the color-based indicators may still have some potential when used alongside the proper supporting trading rules. StrataSearch users can explore this further by downloading this month’s plugin from the Shared Area of the StrataSearch user forum and running an automated search for supporting rules.

//*********************************************************
// Colored Bars - Green
//*********************************************************
days = parameter("Days");
IsGreen = if(close > ref(close, -days) and 
	volume > ref(volume, -days), 1, 0);

//*********************************************************
// Colored Bars - Blue
//*********************************************************
days = parameter("Days");
IsBlue = if(close > ref(close, -days) and 
	volume <= ref(volume, -days), 1, 0);

//*********************************************************
// Colored Bars - Orange
//*********************************************************
days = parameter("Days");
IsOrange = if(close < ref(close, -days) and 
	volume <= ref(volume, -days), 1, 0);

//*********************************************************
// Colored Bars - Red
//*********************************************************
days = parameter("Days");
IsRed = if(close < ref(close, -days) and 
	volume > ref(volume, -days), 1, 0);

—Pete Rast
Avarin Systems, Inc.
www.StrataSearch.com

BACK TO LIST

NINJATRADER: COLOR-BASED SYSTEM

We have implemented VolumeColors and VolumeColorsStrategy as an automated strategy and indicator based on Edgar Kraut’s article in this issue, “A Color-Based System For Short-Term Trading.” The indicator and strategy are available for download from www.ninjatrader.com/SC/July2011SC.zip.

Once they have been downloaded, from within the NinjaTrader Control Center window, select the menu File → Utilities → Import NinjaScript and select the downloaded file. This file is for NinjaTrader version 7 or greater.

You can review the strategy source code by selecting the menu Tools → Edit NinjaScript → Strategy from within the NinjaTrader Control Center window and selecting “VolumeColorsStrategy.”

You can review the indicator source code by selecting the menu Tools → Edit NinjaScript → Indicator from within the NinjaTrader Control Center window and selecting “VolumeColors.”

NinjaScript uses compiled Dlls that run native, not interpreted, which provides you with the highest performance possible.

A sample chart implementing the strategy is shown in Figure 19.

Figure 19: NINJATRADER, Color-Based System. This screenshot shows the VolumeColorsStrategy and related indicator applied to a daily chart of the SPDR ETF (SPY).

—Raymond Deux & Ryan Millard
NinjaTrader, LLC
www.ninjatrader.com

BACK TO LIST

TRADESIGNAL: COLOR-BASED SYSTEM

The strategy proposed by Edgar Kraut in his article in this issue, “A Color-Based System For Short-Term Trading” can be implemented using our online charting tool at www.tradesignalonline.com.

At the site, simply check the “Infopedia” section for our lexicon, where you will find the indicator and strategy. Click on it and select “Open script.” The indicator and/or strategy will be immediately available for you to apply to any chart you wish to. A sample is shown in Figure 21.

FIGURE 21: TRADESIGNAL ONLINE, COLOR-BASED STRATEGY. Here is a sample chart produced from Tradesignal Online with Edgar Kraut’s color-based indicator and strategy applied to a daily chart of Google, Inc.

 
TradeSignal code: Color Based Short Term Trading.eqs

Meta:
	Weblink ("https://www.tradesignalonline.com/lexicon/view.aspx?id=16905"),
	Synopsis("Long-only trading system, based on price and volume data from the 07/2011 issue of Stocks and Commodities."),
	Subchart( False );

Inputs:
	Period( 10 , 1 ),
	Percent_Stop( 1.0 );

Vars:
	greenBar, blueBar, orangeBar, redBar, stopLevel;

greenBar = Close > Close[Period] And Volume > Volume[1];
blueBar = Close > Close[Period] And Volume < Volume[Period];
orangeBar = Close < Close[Period] And Volume < Volume[Period];
redBar = Close < Close[Period] And Volume > Volume[1];

If greenBar Or blueBar Then
	Begin
		Buy This Bar on Close;
		stopLevel = Close - ( ( Close / 100 ) * Percent_Stop );
	End;

If MarketPosition = 1 Then
	Begin
		stopLevel = MaxList( stopLevel, Close - ( ( Close / 100 ) * Percent_Stop ) );
		Sell("Stop") Next Bar at stopLevel Stop;
		DrawSymbol( stopLevel, "Stop", SymbolDot, 5, DarkGreen, DarkGreen );
	End;

// *** Copyright tradesignal GmbH *** 
// *** www.tradesignal.com ***



 TradeSignal code: Color Based Trading.eqi
 
 Meta:
	Weblink ("https://www.tradesignalonline.com/lexicon/view.aspx?id=16905"),
	Synopsis("Color based trading indicator for long-only trading systems, based on price and volume data from the 07/2011 issue of Stocks and Commodities."),
	ShortCode("CBT"),
	Subchart( True );

Inputs:
	Period( 10 , 1 );

Vars:
	greenBar, blueBar, orangeBar, redBar, stopLevel, barColor;

greenBar = Close > Close[Period] And Volume > Volume[1];
blueBar = Close > Close[Period] And Volume <= Volume[Period];
orangeBar = Close <= Close[Period] And Volume <= Volume[Period];
redBar = Close <= Close[Period] And Volume >= Volume[1];

If greenBar Then
	barColor = DarkGreen
Else If blueBar Then
	barColor = DarkBlue
Else if orangeBar Then
	barColor = ColorOrange
Else if redBar Then
	barColor = red;

DrawForest( 0, Volume, "Zero Volume", "Volume", Thick, barColor );

// *** Copyright tradesignal GmbH *** 
// *** www.tradesignal.com ***
 

—Sebastian Schenck, Tradesignal GmbH
support@tradesignalonline.com
www.TradesignalOnline.com, www.Tradesignal.com

BACK TO LIST

COLOR-BASED SYSTEM — KRAUT ARTICLE CODE

To Produce Colored Bars In Metastock
To produce the colored volume window, the green, blue, orange, and red indicators are dropped onto the monochrome volume bars of a chart as histograms.

Green Bar:

P2 := C;
V2 :=V;
P1 := Ref(C, -10);
V1 := Ref(V, -10);

If (P2 > P1 AND V2>V1, 1,0)

Blue Bar:

P2 := C;
V2 :=V;
P1 := Ref(C, -10);
V1 := Ref(V, -10);

If (P2 > P1 AND V2 < V1, 1,0)

Orange Bar:

P2 := C;
V2 :=V;
P1 := Ref(C, -10);
V1 := Ref(V, -10);

If (P2 < P1 AND V2 <V1, 1,0)

Red Bar:

P2 := C;
V2 :=V;
P1 := Ref(C, -10);
V1 := Ref(V, -10);

If (P2 < P1 AND V2 > V1, 1,0)

—Edgar Kraut

BACK TO LIST