Friday 29 July 2011

Update on the Trend Vigor indicator

I have now completed some preliminary Monte Carlo testing of the Trend Vigor indicator and I thought this would be a good opportunity to share with readers the general approach I have been taking when talking about my Monte Carlo testing on predefined, "ideal" market types.

Firstly, I create my "ideal" market types by using an Octave .oct function, the code for which is given below. In this code can also be seen my implementation of the code for the Trend Vigor indicator, which I think is slightly different from Elher's. The code is commented, so no further description is required here.

.oct function code
// This function takes as arguments a single value input for a sinewave period and a single value input for a degrees increment value. A sinewave of the 
// given period is created and then trends are added to the sinewave such that 5 hypothesised "ideal" market types are created: these are

// 1) a perfectly cyclic sideways market with no trend i.e. just the sinewave component
// 2) an uptrending market with cyclic retracements (uwr) such that retracements are down to the 50% Fibonacci ratio level
// 3) an uptrending market with no retracemnets (unr) i.e. the uptrend completely swamps the downward cyclic component counter to the trend
// 4) a downtrending market with cyclic retracements (dwr) such that retracements are up to the 50% Fibonacci ratio level
// 5) a downtrending market with no retracements (dnr) i.e. the downtrend completely swamps the upward cyclic component counter to the trend

// The cyclic component of these markets is then extracted using the bandpass indicator. These vector lengths are 500 in order to allow time for the 
// bandpass calculations to settle down. The peak to peak amplitude is then recovered from the bandpass at the end of each market vector. The trend slope 
// is also calculated at the end of each market vector. The trend vigor indicator value is then calculated thus
// trend_slope/p_to_p. The bandpass delta is set to 0.2.

// The idea is that 
// for a sideways market the value should be about 0
// for a trending with retracement market the value should be > 0 && < 1 or < 0 && > -1, depending on whether an up trend or down trend
// for a trending with no retracement market the ratio should be > 1  or > -1, depending on whether an up trend or down trend 

// The original sinewave is then repeatedly phase shifted by the degrees increment value, the above process repeated and new values are calculated. 
// All the calculated values for each market type are the vector outputs of the function. 

#define PI 3.14159265

DEFUN_DLD (trend_vigor_dist, args, , "Inputs are period & degrees increment value, outputs are vectors of repeated median slope values")
    octave_value_list retval_list;

    if (args(0).length () < 1 | args(0).length () > 1)
        error ("Invalid arguments. Inputs are single value period length and single value degrees increment value");
        return retval_list;

    if (args(1).length () < 1 | args(1).length () > 1)
        error ("Invalid arguments. Inputs are single value period length and single value degrees increment value");
        return retval_list;

    if (error_state)
        error ("Invalid arguments. Inputs are single value period length and single value degrees increment value");
        return retval_list;
    // read inputs
    int period = args(0).int_value ();
    double degrees_inc = args(1).double_value ();
    double period_inc = 360.0 / double(period);
    int length = period + 1; // the length of the "lookback". Is equal to period + 1 to encompass a full period

    // vectors to hold created market values
    ColumnVector sideways_vec(500); // vector to hold sideways market values
    ColumnVector sideways_bandpass_vec(500); // vector to hold bandpass of sideways market values

    ColumnVector uwr_vec(500); // vector to hold uwr market values
    ColumnVector uwr_bandpass_vec(500); // vector to hold bandpass of uwr market values
    ColumnVector unr_vec(500); // vector to hold unr market values
    ColumnVector unr_bandpass_vec(500); // vector to hold bandpass of unr market values

    ColumnVector dwr_vec(500); // vector to hold dwr market values
    ColumnVector dwr_bandpass_vec(500); // vector to hold bandpass of dwr market values
    ColumnVector dnr_vec(500); // vector to hold dnr market values
    ColumnVector dnr_bandpass_vec(500); // vector to hold bandpass of dnr market values

    // calculate the market trend_incs
    double uwr_trend_inc = 12 / ( 5 * double(period) );
    double unr_trend_inc = 4 / double(period);
    double dwr_trend_inc = -( 12 / ( 5 * double(period) ) );
    double dnr_trend_inc = -( 4 / double(period) );

    // declare variables for bandpass and trend vigor calculations
    double delta = 0.2;
    double beta = cos( (360.0/period)*PI/180.0 );
    double gamma = 1.0 / cos( (720.0*delta/period)*PI/180.0 );
    double alpha = gamma - sqrt(gamma*gamma - 1.0); 
    double power_side;
    double power_uwr;
    double power_unr;
    double power_dwr;
    double power_dnr;
    double rms;
    double p_to_p;

    // create output vectors
    int output_vec_length = int ( 360 / degrees_inc );
    ColumnVector sideways_dist ( output_vec_length ); // create output column of correct length for sideways market
    ColumnVector uwr_dist  ( output_vec_length ); // create output column of correct length for uwr market
    ColumnVector unr_dist  ( output_vec_length ); // create output column of correct length for unr market
    ColumnVector dwr_dist  ( output_vec_length ); // create output column of correct length for dwr market
    ColumnVector dnr_dist  ( output_vec_length ); // create output column of correct length for dnr market

    for (octave_idx_type ii (0); ii < output_vec_length; ii++) 

        // Create the market types and their bandpasses for this ii iteration
 for (octave_idx_type jj (0); jj < 500; jj++) 

        // First create the sideways market type
        sideways_vec(jj) = sin( (degrees_inc*ii + period_inc*jj) * PI / 180 );
                if ( jj < 2 )
                sideways_bandpass_vec(jj) = 0;
                sideways_bandpass_vec(jj) = 0.5*(1.0 - alpha)*(sideways_vec(jj) - sideways_vec(jj-2)) + beta*(1.0 + alpha)*sideways_bandpass_vec(jj-1) - alpha*sideways_bandpass_vec(jj-2);

        // next, the uwr retracement market (uwr)
        uwr_vec(jj) = sideways_vec(jj) + jj*uwr_trend_inc;

                if ( jj < 2 )
                uwr_bandpass_vec(jj) = 0;
                uwr_bandpass_vec(jj) = 0.5*(1.0 - alpha)*(uwr_vec(jj) - uwr_vec(jj-2)) + beta*(1.0 + alpha)*uwr_bandpass_vec(jj-1) - alpha*uwr_bandpass_vec(jj-2);

        // next, the unr retracement market (unr)
        unr_vec(jj) = sideways_vec(jj) + jj*unr_trend_inc;

                if ( jj < 2 )
                unr_bandpass_vec(jj) = 0;
                unr_bandpass_vec(jj) = 0.5*(1.0 - alpha)*(unr_vec(jj) - unr_vec(jj-2)) + beta*(1.0 + alpha)*unr_bandpass_vec(jj-1) - alpha*unr_bandpass_vec(jj-2);

        // next, the dwr retracement market (dwr)
        dwr_vec(jj) = sideways_vec(jj) + jj*dwr_trend_inc;

                if ( jj < 2 )
                dwr_bandpass_vec(jj) = 0;
                dwr_bandpass_vec(jj) = 0.5*(1.0 - alpha)*(dwr_vec(jj) - dwr_vec(jj-2)) + beta*(1.0 + alpha)*dwr_bandpass_vec(jj-1) - alpha*dwr_bandpass_vec(jj-2);

        // next, the dnr retracement market (dnr)
        dnr_vec(jj) = sideways_vec(jj) + jj*dnr_trend_inc;

                if ( jj < 2 )
                dnr_bandpass_vec(jj) = 0;
                dnr_bandpass_vec(jj) = 0.5*(1.0 - alpha)*(dnr_vec(jj) - dnr_vec(jj-2)) + beta*(1.0 + alpha)*dnr_bandpass_vec(jj-1) - alpha*dnr_bandpass_vec(jj-2);

        } // end of jj loop to create the different markets and their bandpasses

    // now loop over end of each market vector to create the distributions

     power_side = 0.0;
     power_uwr = 0.0;
     power_unr = 0.0;
     power_dwr = 0.0;
     power_dnr = 0.0;

     for (octave_idx_type jj (0); jj < length; jj++)
         power_side = power_side + sideways_bandpass_vec(499-jj)*sideways_bandpass_vec(499-jj) + sideways_bandpass_vec(499-jj-int(period/4.0))*sideways_bandpass_vec(499-jj-int(period/4.0)) ;
         power_uwr = power_uwr + uwr_bandpass_vec(499-jj)*uwr_bandpass_vec(499-jj) + uwr_bandpass_vec(499-jj-int(period/4.0))*uwr_bandpass_vec(499-jj-int(period/4.0)) ;
         power_unr = power_unr + unr_bandpass_vec(499-jj)*unr_bandpass_vec(499-jj) + unr_bandpass_vec(499-jj-int(period/4.0))*unr_bandpass_vec(499-jj-int(period/4.0)) ;
         power_dwr = power_dwr + dwr_bandpass_vec(499-jj)*dwr_bandpass_vec(499-jj) + dwr_bandpass_vec(499-jj-int(period/4.0))*dwr_bandpass_vec(499-jj-int(period/4.0)) ;
         power_dnr = power_dnr + dnr_bandpass_vec(499-jj)*dnr_bandpass_vec(499-jj) + dnr_bandpass_vec(499-jj-int(period/4.0))*dnr_bandpass_vec(499-jj-int(period/4.0)) ;

     // fill the distribution vectors
     rms = sqrt( power_side / (period+1) ) ;
     p_to_p = 2.0 * 1.414 * rms ;
     sideways_dist(ii) = ( sideways_vec(499) - sideways_vec(499-period) ) / p_to_p ;

     rms = sqrt( power_uwr / (period+1) ) ;
     p_to_p = 2.0 * 1.414 * rms ;
     uwr_dist(ii) = ( uwr_vec(499) - uwr_vec(499-period) ) / p_to_p ;

     rms = sqrt( power_unr / (period+1) ) ;
     p_to_p = 2.0 * 1.414 * rms ;
     unr_dist(ii) = ( unr_vec(499) - unr_vec(499-period) ) / p_to_p ;

     rms = sqrt( power_dwr / (period+1) ) ;
     p_to_p = 2.0 * 1.414 * rms ;
     dwr_dist(ii) = ( dwr_vec(499) - dwr_vec(499-period) ) / p_to_p ;

     rms = sqrt( power_dnr / (period+1) ) ;
     p_to_p = 2.0 * 1.414 * rms ;
     dnr_dist(ii) = ( dnr_vec(499) - dnr_vec(499-period) ) / p_to_p ;

    } // end of main ii loop

    retval_list(4) = dnr_dist;
    retval_list(3) = dwr_dist;
    retval_list(2) = unr_dist;
    retval_list(1) = uwr_dist;
    retval_list(0) = sideways_dist;

    return retval_list;
This function is called by this simple Octave script
clear all

inc = input( "Enter phase increment: ");

for ii = 6:50

[sideways_dist,uwr_dist,unr_dist,dwr_dist,dnr_dist] = trend_vigor_dist(ii,inc);
file = strcat( int2str(ii),"_period_dist" );

which writes the output of the tests to named files which are to be used for further analysis in R.

Firstly, using R, I wanted to see what the distribution of the results looks like, so this R script
data <- as.matrix(read.csv(file="20_period_dist",head=FALSE,sep=,))
side <- density(data[,1])
uwr <- density(data[,2])
max_uwr_y <- max(uwr$y)
max_uwr_x <- max(uwr$x)
min_uwr_x <- min(uwr$x)
unr <- density(data[,3])
max_unr_y <- max(unr$y)
max_unr_x <- max(unr$x)
min_unr_x <- min(unr$x)
dwr <- density(data[,4])
max_dwr_y <- max(dwr$y)
max_dwr_x <- max(dwr$x)
min_dwr_x <- min(dwr$x)
dnr <- density(data[,5])
max_dnr_y <- max(dnr$y)
max_dnr_x <- max(dnr$x)
min_dnr_x <- min(dnr$x)
plot_max_y <- max(max_uwr_y,max_unr_y,max_dwr_y,max_dnr_y)
plot_max_x <- max(max_uwr_x,max_unr_x,max_dwr_x,max_dnr_x)
plot_min_x <- min(min_uwr_x,min_unr_x,min_dwr_x,min_dnr_x)
produces plots such as this output
where the top plot shows the distributions of the uwr, unr, dwr and dnr markets, and the lower plot the sideways market. In this particular case, the spread of each distribution is so narrow ( measured differences of the order of thousandths of a decimal place ) that I consider that for practical purposes the distributions can be treated as single values. This simple R boot strap script gets the average value of the distributions to be used as this single point value.

data <- as.matrix(read.csv(file="trend_vigor_dist_results",head=FALSE,sep=,))
side <- data[,1]
uwr <- data[,2]
unr <- data[,3]
dwr <- data[,4]
dnr <- data[,5]
side_samples <- matrix(0,50000)
uwr_samples <- matrix(0,50000)
unr_samples <- matrix(0,50000)
dwr_samples <- matrix(0,50000)
dnr_samples <- matrix(0,50000)

for(ii in 1:50000) {
side_samples[ii] <- mean(sample(side, replace=T))
uwr_samples[ii] <- mean(sample(uwr, replace=T))
unr_samples[ii] <- mean(sample(unr, replace=T))
dwr_samples[ii] <- mean(sample(dwr, replace=T))
dnr_samples[ii] <- mean(sample(dnr, replace=T))

side_mean <- mean(side_samples)
uwr_mean <- mean(uwr_samples)
unr_mean <- mean(unr_samples)
dwr_mean <- mean(dwr_samples)
dnr_mean <- mean(dnr_samples) 
For readers' interest, the actual values are 0.829, 1.329, -0.829 and -1.329 with 0 for the sideways market.

This final plot is the same Natural Gas plot as in my previous post, but with the above values substituted for Ehler's default values of 1 and -1.
What I intend to do now is use these values as the means of normal distributions with varying standard deviations as inputs for my Naive Bayes classifier. Further Monte Carlo testing will be done such that values for the standard deviations are obtained that result in the classifier giving false classifications, when tested using the "ideal" markets code above, within acceptable limits, most probably a 5% classification error rate.

Tuesday 26 July 2011

A "new" indicator for possible inclusion in my Naive Bayesian Classifier

I have recently come across another interesting indicator on Ehler's website, information about which is available for download in the seminars section. It is the Trend Vigor indicator and below is my Octave .oct function implementation of it, first shown on the continuous, back-adjusted Natural Gas contract
and next the EURUSD spot forex market, both daily bars.
My implementation is slightly different from Ehler's in that there is no smoothing of the trend slope prior to calculation of the indicator. My reason for this is that smoothing will change the probability distribution of the indicator values, and since my Naive Bayes Classifier uses Kernel Density Estimation of a Mixture model, I prefer not to "corrupt" this density calculation with the subjective choice of a smoothing algorithm. As before, all parameters for this part of the classifier will be determined by using Monte Carlo techniques on "ideal," synthetically modelled market prices.

In the Natural Gas chart above it can be seen that the latter half of the chart is mostly sideways action, as determined by the Trend Vigor indicator, whilst my current version of the classifier ( the colour coded candlesticks ) does not give a corresponding similar determination for the whole of this later half of the chart. This is also the case in the second EURUSD chart. It is my hope that including the Trend Vigor indicator as an input to the classifier will improve the classifier's classification ability.

More on this in due course.

Update on Metatrader 4 C++ DLL coding

Coding of my suite of indicators for the Metatrader 4 platform using C++ DLLs is on-going and below is a screen shot of my installation as it stands at the moment.
The indicators are the Cybercycle, with its 1, 2, 3 and 4 day leads in the sub plot, and the instantaneous trendline, in red, and the Tukey contol lines, blue, in the main chart.

One thing that I have come up against in this coding are some of the apparent limitations of the Metatrader 4 platform; for instance there is a limit to how many lines can be drawn, per indicator, in any chart window. Also I am not yet able to access the values of one indicator, in the sub plot for example, for plotting in the main chart, i.e. plotting arrows above/below the candlesticks to indicate where the leading Cybercycle functions cross each other. Either this requires some substantial "hack" or much more advanced Metaquote language programming skills than I possess at the moment.

Thursday 7 July 2011

Metatrader 4 C++ DLL Coding

I have finally managed to teach myself, with help from various online sources including this very helpful forum thread, how to code a C++ DLL for the Metatrader 4 trading platform. As practise I have coded a simple moving average indicator using a recursive algorithm, the code for which I make freely available as a PDF download on the Dekalog website here.

Now that I have learned this I can begin, as I had hoped I would be able to, to "drag and drop" my C++ .oct functions into the Metatrader platform for testing and trading using live intraday forex data.