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There has been some discussion on bouncing ticks. B Fulks explains it well
from a old posting. It helped me a lot .
Here it goes............
Mike
> Subj: CL_Re: Bouncing-Ticks
> From: bfulks@xxxxxxxxxxxx (Bob Fulks)
> 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
>
> -----
>
> 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
>
> http://www.markbrown.com
>
>
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