In this issue:
I. Commentary by Marge Sherald, CEO
II. Introducing Formula Editor in ChaosHunter 4.0 upgrade
III. Embedding nets in trading systems
IV. dtn IQFEED now offers free 14-day free trial
V. Office closed Monday, May 27, for Memorial Day
VI. How to stop this newsletter
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I. Commentary by Marge Sherald, CEO
1. Tweak your formula directly in ChaosHunter
How often have you just wanted to fine tune your ChaosHunter formula and view the results? Perhaps ChaosHunter built a trading model with a relative strength indicator and you wanted to see if the same formula works better with a momentum indicator? Or perhaps you wanted slightly different parameter values for long and short trades? Up until now the usual process would be to take the ChaosHunter formula to another program such as NeuroShell Trader, and then change the indicators or parameters and apply the new formula to your data. Now you can make the changes in ChaosHunter with the Formula Editor tool and immediately apply the revised formula to your data to view results.
Some of you might see it as the best combination of machine and human intelligence. I can tell you from experience that it’s addictive. “Just one more change and then I’ll stop,” is what I was thinking a lot during the beta test.
You can also use the Formula Editor to simply start building a formula with the ChaosHunter point and click interface. The Formula Editor is part of the Release 4 upgrade. Check out the article below for details.
2. NeuroShell Trader examples to get you started
New users often ask us about what is the best way to get started with NeuroShell Trader. We usually tell them to look at the 25 example charts that come with the program. (Go to the File menu, select open, and pick one of the example charts installed with the program.) The charts come complete with an explanation of different techniques used to build the trading system. If a chart includes a Trading Strategy, for example, you can right click on the strategy and choose Modify Selected Trading Strategy. Continue to click on the back button to view each step of the process.
There are also a number of charts available from www.ward.net, out technical support web site. Check out the NeuroShell Trader New and Updated Examples section. We’ve added charts from the Gee Whiz examples that appear on www.neuroshell.com. Some of the examples include neural networks, while others are built with more traditional trading rules.
In addition to the Gee Whiz examples, the ward.net website lets you download charts from recent newsletter articles. Another source is the entire section devoted to charts from the monthly Traders’ tips in “Technical Analysis of Stocks and Commodities” magazine. You can download each month’s chart, which will give you access to the indicators described in the article. You may also continue to use many of those same indicators in your own charts.
We also periodically update example charts from the Ward Systems Group add-ons. This month we’ve updated the Turning Points example #4, which compares the peak and valley probability indicators against a threshold found by the optimizer in order to generate trading signals. The Peak Probability (bars) indicator output is the probability that the current bar is at the next turning point peak, based on the valley-to-peak bar distance mean and standard deviation in the window. The probability ranges from 0 (peak is not probable) to 1 (peak is extremely probable). The peak probability only calculates if the most recent turning point in the window is a valley. If it is a peak, then the peak probability is set to zero. The opposite is true for the Valley Probability indicator.
To download the example charts for Ward Systems Group add-ons, you need to log in to www.ward.net with your add-on serial number. Otherwise, use your NeuroShell Trader serial number to log in.
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II. Introducing Formula Editor in ChaosHunter 4.0 upgrade
When ChaosHunter creates a formula, the optimizer chooses the formula components from your initial selection of inputs and operations, based on the optimization settings and formula parameters you choose such as population size, training objective, max equation size, max lookback period, etc. When you see the final formula produced by ChaosHunter, you might wonder what the results might be if you altered one or several of the formula terms. The ChaosHunter Formula Editor allows you to make those changes and apply the model to your data file.
You can use the Formula Editor to make any of the following changes:
Edit a ChaosHunter Model
The Formula Editor lets you make small revisions to a ChaosHunter formula. For example, if the ChaosHunter formula includes a term that is the slope of the close over 3 periods, you might want to experiment with a slope calculated over 10 periods to determine if the model is more effective if it looks farther back in time. Since ChaosHunter will not let you modify models during the optimization process, you could not play this type of “what if” games without the Formula Editor.
Another example would be if you want to fine tune the terms inside a ChaosHunter formula for long and short trades. (When ChaosHunter creates a model for both the long and short side, it uses the same formula and evolves different buy/sell threshold values.) The Formula Editor gives you the power to change and test different terms inside of the formula itself, in addition to modifying the threshold values found by ChaosHunter.
Add a Missing Element to a ChaosHunter Model
If you believe that a particular operation such as a neural net would be beneficial to your model, but the optimization process has not yet included neural nets in your formula, you could let ChaosHunter continue to evolve models and hope that a new model includes neural nets, or you can use the Formula Editor to tweak an existing ChaosHunter formula or write a new formula that includes neural nets. You can immediately test this formula in the Apply screen on the optimization data set, the out-of-sample set, or both.
Quickly Prototype a Model
If you already have a set of rules in mind for your model, you can use the Formula Editor to create a formula with those rules, even if ChaosHunter has not yet created a formula. Once you have developed a successful formula, you could feed the inputs and operations from your formula to ChaosHunter to possibly evolve an even better formula.
Note: ChaosHunter will let you save several formulas as long as you give them different names. So you can save both the formula you created and a formula optimized by ChaosHunter. ChaosHunter cannot optimize any formula you change or create in the Formula Editor, but ChaosHunter can continue to optimize any formula originally optimized by ChaosHunter.
Other Changes in Release 4
The Release 4.0 optimization screen has added a separate test set graph for viewing while optimization progresses. Once optimization is complete, you can sort results by clicking on the column heading of interest. For example, you could sort by test set results to view the models that work better on the out-of-sample data. Release 4 adds a new production example which shows how ChaosHunter can discover relationships in inputs that improve model performance.
The price of the upgrade for ChaosHunter 4.0 is $495. If you are currently an owner of ChaosHunter 3.0, you can purchase the upgrade at a 20% discount, so your cost would be $396.00. You may order the release 4.0 upgrade from www.ward.net/60.asp. You may also call us at 301 662 7950.
If you haven’t given ChaosHunter a try, visit www.ChaosHunter.com to learn more – and save 20% on your purchase. You can read the entire product manual on the web site.
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III. Embedding Nets into Trading Systems
We often get questions about combining a neural network with trading rules, optimizing threshold values, or adding trailing stops. Once you have added a prediction to the chart, you may include it in a Trading Strategy using either of the following two methods.
1. Choose the Prediction Signal and threshold value found by the net
From the Insert Menu, select Trading Strategy. On the Long Entry tab in the wizard, click on the Add Conditions button and a list of existing data streams on the chart is displayed. Select the Prediction and then choose the Outputs folder. Click on Pred > Long Entry Threshold Predicted 4 bar %Change in Open, for example, and click OK to add the prediction to the Long Entry tab. Do the same for the Long Exit, Short Entry, and Short Exit tabs in the Trading Strategy Wizard, being sure to match each prediction rule with the appropriate tab. These instructions assume that you trained the Prediction for both Long and Short trades. You must insert all four conditions if you want to replicate the trading signals from the Prediction in the Trading Strategy. If you set up the Prediction Wizard to trade Long only, you are only required to add entries to the Long Entry and Long Exit tabs in the Trading Strategy wizard. Choosing Pred > Long Entry Threshold etc. uses the threshold value found during optimization of the net. You may add trailing stops and other trading rules to the Trading Strategy, which may be optimized. However, the neural network rules remain the same unless you make changes in the prediction.
2. Insert Prediction Signal > a threshold value you enter
From the Insert Menu, select Trading Strategy. On the Long Entry tab, click on the Add Conditions button followed by the Indicator button and then look for the relational category. Choose A > B and let A = Prediction SIGNAL and set B = 0. The Prediction Signal is chosen from the list of existing data streams on the chart. Select Prediction from the list and then choose the Outputs folder. Be sure to select the Prediction SIGNAL rather than the Prediction. The Prediction values are displayed on the chart for the bar on which they are forecast, whereas the Prediction Signal is displayed on the chart for the bar on which the prediction was made. You need to use the Prediction Signal in order to send your trade in on time.
Repeat the process on the Long Exit tab, but choose A < B. The Short Entry is also A < B, and Short Exit is A > B. Set the range for B from -1 to 1 on all four tabs (or whatever range is appropriate for the range or prediction signal values). By setting up the Trading Strategy this way, you can optimize individual threshold values for each entry and exit condition. This method also lets the optimizer find threshold values that work in concert with any other trading rules or predictions you may add, such as when you’re building an ensemble system or when you add trailing stops. Because the threshold values may change, the trading signals in the Trading Strategy may differ from those in the prediction.
This method may also be used with the Adaptive TurboProp2 add-on or the Adaptive Net Indicators, both of which retrain on every bar. Just substitute the prediction from Adaptive TurboProp2 for the Prediction Signal in the above description.
We’ve posted a chart with these two different methods of inserting Predictions in Trading Strategies in the New and Updated Examples section of www.ward.net.
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IV. dtn IQFEED now offers free 14-day free trial
dtn IQFEED is offering a free 14-day trial of its NeuroShell Trader compatible data feed. The sign-up process is now quicker and simpler because it’s very similar to an online shopping cart.
IQFeed from Telvent DTN provides minute/daily/weekly/monthly data on all North American stocks, futures and options (over 600,000 symbols). In addition, IQFeed provides many international futures exchanges and 2 levels of Forex data service to fit the needs of any trader. Several years of minute data is included (Forex back to Feb 2005, E-minis back to Sept 2005, Stock/Futures/Indexes back to May 2007). There is no aggregation of ticks in IQFeed, all data is unfiltered for the fastest and most accurate analysis available.
Pricing starts at $60 per month and includes the ability to watch 500 symbols at a time, full historical data, real time streaming news, over 400 market breadth indicators and the best customer support in the industry (toll free 800#, email, forums, Skype, RT Chat). Ask about an annual subscription to save on your subscription.
If you’re a new customer, you can sign up for the free iQFEED 14-day trial at this web site: https://www.iqfeed.net/Neuroshell/index.cfm?displayaction=start
If you need help with signing up for the iQFeed free trial or have any iQFeed related questions, contact Dave Forss, the Sales/Business Development Manager, at 402.255.8429 or Toll Free at 800.475.4755.x.8429. You may also E-mail him at
da********@dt*.com
. You may also reach Dave through their Website for an online chat at http://www.iqfeed.net/dave/
According to Dave, “We are continually striving to provide your customers with the fastest, cleanest, most complete and reliable market data and we are confident these improvements will make their lives a little easier while saving them valuable time.”
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V. Office closed Monday, May 27, for Memorial Day
The Ward Systems Group offices will be closed on Monday, May 27, in honor of Memorial Day. The offices will reopen on Tuesday, May 28.
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VI. One way to stop this newsletter
It is really easy. Just change your E-mail address and don’t tell us.
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