Know When to Fold 'em

Questions about MultiCharts and user contributed studies.
wall richard
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Know When to Fold 'em

Postby wall richard » 14 Jun 2012

About 10 years ago Bill Dreiss wrote ChoppinessIndex. After studying "CI" I realized that it could be very useful in determining the end of a trend. When the CI is below 50, it indicates either an up OR down trend. At the deepest of the spike down and start back up it's time to Fold 'em. Never trade when above 50. I've modified his code a little and included it. Also attached is screen shot marked with small blue arrows. It could also be argued that when the CI crosses below the 50 line either a long or short can be entered.

There are only 2 inputs and these should be adjusted for each instrument and bar interval for best results.

Input: Length(8), LRV(7);
Var: n(0), true_high(0), true_low(0), tr_rang(0), sum(0), n_high(0),
n_low(0), n_range(0), ratio(0), log_ratio(0), log_n(0), ChopinessIndex(0);

n = length;
true_high = @Maxlist(high, close[1]);
true_low = @MinList(low, close[1]);
tr_rang = true_high - true_low;
sum = @summation(tr_rang, n);
n_high = @highest(true_high, n);
n_low = @Lowest(true_low, n);
n_range = n_high - n_low;
ratio = sum/n_range;
log_ratio = Log(ratio);
log_n = Log(n);

ChopinessIndex=100*log_ratio/log_n;

ChopinessIndex = LinearRegValue(ChopinessIndex, LRV,0);

PLot2(50,"");

If ChopinessIndex > 50 then

Plot1(ChopinessIndex,"CI",red);

PLot2(50,"");

If ChopinessIndex < 50 then

Plot1(ChopinessIndex,"CI", red);


Richard
Attachments
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wall richard
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Re: Know When to Fold 'em

Postby wall richard » 14 Jun 2012

Here is another screen shot. I have added orange arrows when the CI crosses under 50. These arrows mark entry points of long or short. Although all trades marked are profitable I'm not convinced this is the best way to enter the market.
Attachments
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NW27
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Re: Know When to Fold 'em

Postby NW27 » 14 Jun 2012

Hi Richard,

Things to consider -
1. What is the Rule that says enter Long or enter Short?
2. What is the exit? You only know the deepest of the spike after it has turned up.
3. What is your StopLoss area relative to this strategy?
4. Trades 4 & 7 are not winners. Remember that you only get the RED arrow after that bar has completed.
5. How long does the customization of the inputs to the instrument hold before they go out of tolerance and start to generate false signals?
6. How's the back testing look?

Neil.

wall richard
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Re: Know When to Fold 'em

Postby wall richard » 15 Jun 2012

Hi Neil,

Please note the title of this post. "When to Fold 'em" means exit the trade. #1 I have not described a strategy. In describing a possible entry technique, I have commented above that "I'm not convinced this is the best way to enter the market". I mention it for informational purposes only. #2 - you have to wait until the first CI up tick - it predicts a trend peak or trough very closely. #3 No Strategy - no SL proposed. #4 Again no strategy proposed, only informational. #5 Since individual markets have significant fractal components, there is no quick answer as to when they become out of phase. It's up to you to test. #6 No strategy proposed.

An entry strategy doesn't have to be linked to the CI. I leave it to you to design an entry strategy. The topic and code provided only addresse the choppiness of the market and conversely market trend. The reversal of the down spike nicely indicates when the trend ends. It may augment any other strategy you may have. The rules are simple - don't trade when CI above 50, trade only when the CI spike is going down and fold 'em with the first up tick of the down spike.

Richard

NW27
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Re: Know When to Fold 'em

Postby NW27 » 15 Jun 2012

wall richard wrote:Here is another screen shot. I have added orange arrows when the CI crosses under 50. These arrows mark entry points of long or short. Although all trades marked are profitable I'm not convinced this is the best way to enter the market.


Just following on from your above quote where you showed full trades based on your potential system.

Neil.

wall richard
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Re: Know When to Fold 'em

Postby wall richard » 15 Jun 2012

Hi Neil,

Sorry about the confusion. I am attaching the most recent data screen shot. Using the first IC tick reversal after the IC down spike, I have place arrows above for trend exits. Entry points are omitted. For tuning vary the bar interval until you qualitatively get the overall best trends then change the two inputs until you get the best down spikes. Usually lower numbers are best.

Richard
Attachments
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RWW2224.png
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