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Hello Dhiraj,
Interesting strategy you have. I've had similar problems myself.
>so if market opens at 1000, goes to a high of 1020, the system
>takes a long at 1010, and if the low is 980 then takes a short
>position at 990 exitting the long with -20 points, and keeping a
>short open position.
If you could anticipate such days, it would be best to place a limit
order to sell the high and buy the low. Then those days would be
profitable!
>now the sequence of high and low is not really known. also easy
>language assumes that the high would be made after the low if the
>close is up.
That's actually a pretty safe assumption, in my observations of
other markets. I looked at the ticks of a lot of different bars,
and generally if the close is higher than the open, then the low
occurred before the high. I think the number of times this is wrong
is an insignificantly low number.
>how should i modify the system to take just one position,
Once you place two orders for the next bar, you can't cancel one of
them in the middle of a bar. The only way to do this is to have
a data stream of intraday data, and trade on that, while taking
signals from the EOD stream.
One thing you could try is see if the opening price has any
correlation with the market direction for that day. That is, if the
market opens higher than the previous close, is it more likely to
be an 'up' day? If so, then you could place one entry order. In
general I haven't seen such a correlation, but it may be different
on bars that follow those low-volatility bars you're using as a
set-up.
You *can* reference the next day's open in a signal, for example:
if open[-1] > close then buy at open[-1] * 1.10;
>i "do not have intraday data" for the index and this testing has
>been done on daily data.
Another thing you can try (only for backtesting, and this is a mess
but it can work) is, outside of TS, convert your EOD data into
fake intraday data having 3 bars per day. For example, if the low
comes before the high, your three bars (in O-H-L-C order), would be
O-O-L-L, L-L-H-H, H-H-C-C. Then you could import this as intrday
data into TS, and have enough resolution for your backtests to run
more realistically.
For real trading, you could have an indicator set to update every
tick and produce an alert when the first entry is hit, after which
you enter the order manually and don't enter the other one.
-Alex
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