Tuesday, March 20, 2012

A Quick Detour

The first part of trade automation that I am going to discuss is trade identification. As this involves both identification and a quick risk/reward analysis, before we get too far, I wanted to introduce a quick and dirty way to get a feel for targets and stops.

One very quick way to do this is to have pre-determined trading levels. For example, intra-day, we can use daily and weekly pivots. On longer-term timeframes, we can identify support and resistance levels on charts.

Using python, I quickly whipped up some support/resistance level using the most basic of algorithms. I defined support or resistance as that point where d(Price)/dt = 0, using close-only values to keep things simple. Other additions such as volume weighting, price binning, and intra-day movement can be added quickly to give better levels.

The results:

In the next post, I will use this simple chart to discuss risk/reward and trade identification for an automated trading system.

2 comments:

  1. Nice.

    a few months ago, I took a look at this same approach and really liked it. I got busy with life and stopped my work. I had started looking at volume profiles and weighting but didn't get too far with it.

    Looking forward to the next posts on the topic.

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    Replies
    1. Thank you!

      This really was the simplest little thing, thrown together to illustrate generating levels to trade against.

      Adding intra-day data would help it immensely, and volume would be another major upgrade. This serves our purpose for the time being, though.

      Really appreciate your input.

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