January 18, 2017
IN THIS ISSUE
MULTIPLE TIME FRAME ANALYSIS IN THE REAL WORLD
Users who want to consider both long and short time frames in a single trading strategy are drawn to the Multiple Time Frame Analysis feature of the NeuroShell Trader Power User versions. Your charts can mix and match multiple time frames in data streams, indicators, predictions, and trading strategies as well as other instrument data.
For example, if you want to enter on a daily condition such as when the daily close < lag of the daily close 3 days ago, that’s an easy rule to build in NeuroShell Trader on a daily chart. Buy say that once you enter a trade, you want to exit at a specific time such as 2 pm so you can get in a run without watching your computer.
Questions to Consider
1. Do you build a daily chart, a 1 minute chart, a 5 minute chart?
We chose to build a 5 minute chart because we wanted to exit at 2 pm rather than wait for a daily close. This means that an exit signal would be generated after the close of the 2 pm bar and filled at the open of the 2:05 pm bar, which occurs seconds after the close of the 2 pm bar. The same fill would occur if you used other size bars such as 30 minute or 1 minute.
2. What does chart independent frequency mean?
The indicator, prediction and trading strategy begin with the same question: Same frequency as chart or chart independent frequency. This is referred to as the “output” frequency. If you choose same frequency as the chart, the data points for the new addition will line up with the original chart data.
If you choose chart independent frequency, the new addition to the chart will have the following characteristics:
1) Different data frequency than the chart data
2) Displays on the chart with more or less data points than the original chart data depending upon whether the frequency is higher or lower than the chart frequency
3) Data points generally do not line up with the original chart data
On our 5 minute example chart, we made the Long Entry condition based on daily bars by selecting a Chart Independent Frequency of DAILY and then creating the rule to Enter Long when the DAILY close < 3 day lag of the DAILY close.
3. Daily conditions are true all day. How do you prevent an immediate re-entry?
Our example chart has a Long Exit condition of a specific time, which is checked every five minutes. But once an exit is triggered, it is very likely that the DAILY long entry condition will still be true and the model will generate another Long Entry Signal on the same day. To prevent re-entry on the same day, we added a time condition to the Long Entry so it is only true once a day and this time may be optimized. There are other techniques to prevent an immediate re-entry. The main point to consider is that mixing time frames can result in unexpected behavior and you may have to add additional entry/exit conditions to compensate.
For additional information on building charts with different data frequencies, read the article “The Mechanics of Multiple Data Frequencies in Power User Versions” by Denham Ward that appeared in the January 2013 newsletter.
Click here to download a copy of this chart template. Note that you must own the NeuroShell DayTrader Power User to open this example because of the use of mixed intraday and daily timeframes.