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At 11:16 AM -0400 6/13/99, Mben@xxxxxxx wrote:
>Can anyone explain how bouncing ticks works ? Anyone have any idea as to
>how close this comes to replicating actual trading on daily data ? What
>assumptions does TS make about order execution on daily bars when more
>than one order is triggered ? Is this information documented anywhere ? I
>checked on-line help and the manual but could not find anything. Does
>anyone know if Bill Brower ever wrote this up in TS Express ?
There is a fairly complete description in the on-line help system in
TradeStation 4.0 the text of which is reproduced below. Please see the
actual help data for several pictures.
Omega often gets criticism for this and you might not agree with using the
technique. But they clearly admit that it is a "simulation of market
activity" to get around the problem of not having detailed price movement
within a bar. And as a "simulation", it might be as good as you can get
without more detailed information...
Bob Fulks
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Understanding How TradeStation Simulates Market Activity with Historical Data
When you apply a trading system to a chart of time-based bars based on
historical data, TradeStation uses a set of rules to simulate market
activity. It is important to understand how TradeStation handles the
simulation of market activity on time-based bars when you are testing a
trading system on historical data, for example 60-minute bars or daily
bars, based on historical data (non-real-time/delayed data, either
intra-day or daily).
It is equally important to understand this simulation if you use historical
data on time-based bars when you make the trades signaled by a trading
system because if you trade a system on time-based bars based on historical
data, TradeStation uses the same simulation described in this section.
Note: Time-based bars are any bars not based on ticks. For example,
1-minute bars, 60-minute bars, daily bars, etc. are all time-based bars.
They plot the open, high, low and close price of all transactions that
occur within the specified time period. On the other hand, 1-tick bars,
10-tick bars and 50-tick bars are all examples of bars that are based on
ticks, or transactions, rather than on time. Tick bars (except for 1-tick
bars) plot the open, high, low and close price for the specified number of
transactions; 1-tick bars plot the price of a single transaction.
The information in the next two headings can help you understand how
TradeStation handles the simulation of market activity on time-based bars.
The information in the first heading provides a frame of reference by
describing how TradeStation handles the entry and exit orders of a trading
system applied to time-based bars based on real-time/delayed data.
The information in the second section describes the different way
TradeStation handles the entry and exit orders of a trading system applied
to time-based bars based on historical data (either intra-day data pasted
into the Omega Server or daily data in a supported format).
Understanding How TradeStation Handles Entry and Exit Orders on Time-Based
Bars Built with Real-Time/Delayed Data
Every trading system should be designed with two signals: a signal that
specifies the conditions in which you want to enter the market, and a
signal that specifies the conditions in which you want to exit the market.
Generally speaking, a part of each signal is the price level at which you
want to enter or exit the market.
When you are working with time-based bars based on real-time/delayed data,
TradeStation receives price data tick-by-tick (transaction by transaction)
and builds time-based bars from that tick-by-tick data. As each transaction
is received, TradeStation calculates whether or not the entry or exit
criteria of an applied trading system is triggered by that transaction. If
a transaction is received that matches the entry criteria of the system,
TradeStation issues the entry signal at the exact moment the transaction is
received. If a transaction is received that matches the exit criteria of
the system, TradeStation issues the exit signal at the exact moment that
transaction is received.
Therefore, it is possible to both enter and exit the market on the same
time-based bar in the event that, within the same time-based bar, a
transaction triggers the entry criteria of your system first, then within
the same time-based bar a transaction triggers the exit criteria of your
system. TradeStation handles both signals in the order in which the
transactions are received on a real-time/delayed basis.
If the exit signal of a trading system is triggered first in a time-based
bar in which both the entry and exit criteria of a system are met,
TradeStation handles the exit criteria in the following ways:
If you do not have an open position and a transaction triggers the exit
criteria of your system first and then a later transaction triggers the
entry criteria, TradeStation ignores the exit criteria (because at the time
there is no open position to exit) but issues the entry signal to open a
position.
If you do have an open position and on the same time-based bar a
transaction triggers the exit criteria of your system and then a
transaction triggers the entry criteria of your system, TradeStation shows
the open position as having been liquidated due to the exit criteria, then
would show a new open position based on the entry signal.
As you can see, when you apply a trading system to a time-based chart based
on real-time delayed data, TradeStation can calculate the entry and exit
criteria of your trading system with great precision and enter and exit the
market based on exactly what is happening in the market when one or more of
the criteria of your system are met.
Understanding How TradeStation Handles Entry and Exit Orders on Time-Based
Bars Built with Historical Data
The information in the previous heading provided a frame of reference for
you by covering the way TradeStation handles the entry and exit signals
generated by a trading system when applied to a time-based chart based on
real-time/delayed data.
Before you can understand the way TradeStation simulates market activity
when you apply a trading system to a chart of time-based bars based on
historical data, you need to understand why it is necessary for
TradeStation to simulate market activity when you apply a trading system to
a chart for time-based bars based on historical data.
When you work with time-based bars based on historical data, TradeStation
cannot know the chronological order of the transactions that make up the
bar. The only transactions we can be sure of with time-based bars based on
historical data are the open, which occurred first, and the close, which
occurred last. With time-based bars based on historical data there is no
way to be sure whether the market opened and then went down, or the market
opened and then went up.
However, because of the importance of the order of the ticks when you have
applied a trading system to time-based bars based on historical data, Omega
Research spent a great deal of time studying the movement of various
markets to discover a way to determine the most likely chronological order
of the high and low ticks.
After extensive research, a general rule was established about the
chronological order in which ticks occur. Under this rule, if the open of
the bar is closer to the low of the bar than to the high of the bar,
TradeStation handles the bar as if the low was reached first and then the
price went to the high before moving to the close. If the open price of the
bar is closer to the high of the bar, then TradeStation handles the bar as
if the high was reached first, and the price went to the low before moving
to the close.
The order of the transactions that make up the bar becomes very important
when you apply a trading system to time-based bars based on historical
data. For example, if you had no market position and the entry and exit
criteria of the trading system were both triggered on the same bar, which
signal was triggered first is a very important issue.
If the exit criteria of the system were triggered first, TradeStation would
ignore the exit signal (because there was no market position to exit) and,
when the entry signal was triggered on the same bar, TradeStation would
issue the entry order, showing you as having opened a new position.
Order in which transactions are assumed to have been made
The bars in the above figure show the order in which TradeStation would
assume transactions had occurred. In the above figure, transactions are
marked 1, 2, 3 and 4. The open price of a bar is always number 1. The close
price of the bar is always number 4. The numbers 3 and 4 are used to
designate the most likely chronological order of the high and low ticks.
Rarely does the market strictly follow the 1, 2, 3, 4, order illustrated in
the previous figure. Instead, the market bounces up and down. For example,
even on a day when the market climbs in a relatively steady manner, there
are brief dips followed by still higher highs.
When you apply a trading system to a chart based on historical data, a
special TradeStation innovation called Bouncing Ticks was created to
simulate the irregular up and down way the market really moves, even during
an up-trend or a down-trend.
The way the Bouncing Ticks function works is simple enough to understand:
When market conditions trigger the entry signal of your trading system
(either long or short), TradeStation bounces back by a particular
percentage that you can specify. If, within that percentage, there is a
price that would trigger the exit criteria of your system, TradeStation
exits the position on the same bar on which you entered the position.
Here is the major reason that TradeStation simulates market activity in
this way: During actual market activity, chances are extremely high that
once the entry signal of your trading system is triggered the market would
turn against you by a certain percentage. When testing a trading system on
historical data, you need to take this normal bouncing market activity into
account, particularly when you design your system's exit criteria. For
example, in real-time market conditions, when the market turns against you,
you have no way of knowing if the market will rebound in your direction.
Your system should have been constructed in such a way that it exits your
position before you sustain losses that you cannot afford.
When testing a trading system on a time-based chart based on historical
data, it can signal a flaw in your trading system if the system repeatedly
enters and exits on the same bar. In such a case, we recommend that you
re-examine the rules of your system and redesign the entry and exit
criteria so that the exit criteria of the system liquidates your open
position only when the market takes a significant turn against you.
Setting the Bouncing Ticks Option
As detailed in the previous heading, TradeStation uses an exclusive feature
called Bouncing TicksTM to simulate actual market activity when you apply a
trading system to time-based bars based on historical data. The percentage
that TradeStation bounces back in order to simulate market activity is, by
default, 10 percent of the total price range of the bar. For example, if
the high of the bar were 100 and the low were 90, TradeStation would bounce
back one point whenever the entry signal of a trading system was triggered.
The following provides directions for changing the default percentage that
TradeStation bounces back when the entry criteria of a trading system are
triggered when you apply a trading system to time-based bars based on
historical data.
1. Use the Tools - Options menu sequence to open the Options dialog.
2. Click the System tab to produce the System dialog.
3. In the Percent increment for Bouncing Ticks edit box, delete the
current value (by default, 10 percent) and enter a new value.
4. Click OK to return to TradeStation.
Omega Research decided on the default of 10 percent after extensive
research into how the markets move during the trading day. We recommend
that you not change the default unless you are testing the system to
determine how it performs in what might be considered non-typical market
conditions.
See Also:
Understanding Trading System Signals in a Chart
Using the System Report to View System Results
Using the System Equity Indicator During Testing
Specifying Trading System Input Values
Adjusting Trading System Profit-Loss Results for Costs
Using Stops to Limit Your Potential Losses
Setting Entry Limits on Trading Systems
Understanding Trading System Order Types
Specifying Trailing Stops
Deleting and Turning-Off Systems
Formatting Trading System Colors and Style
Other relevant chapters are:
Chapter 13, Getting to Know Trading Systems
Chapter 15, Optimizing Your Trading Systems
Chapter 16, Automating Your Trading Systems
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