TSCI.pngAdvanced Trading Signal Analysis (Standalone)


7915.png The Advanced Trading Signal Analysis... option in the Tradescape menu is available when using the Trading Sciences platform in standalone mode.

In standalone mode, the ASCII data files written in the various platform procedures are imported independently.

This procedure evaluates one’s own real-world trading signals against the backdrop of an entity’s sentimentscape or referential sentimentscape. Sentimentscapes are tradescapes that have been filtered by a separate sentiment filter that is also based on expectation modeling technology. In such a filter, a target sentiment entity is processed at a specific time horizon, the sentiment length, to produce windows in time where only long or only short trades are permitted.

In a sentimentscape, the traded entity is used for the primary signal and the sentiment entity is used to generate the long-short sentiment signal. Both the sentiment and primary signals are lagged at the same lag fraction for each point in the tradescape surface. The EM sentiment signal in a sentimentscape is always symmetric with respect to the information content used to generate the upside and downside transitions.

This procedure is used exclusively for two-stage sentiment-augmented signaling. If you are using a one-stage signaling directly on the entity being traded, use the Trading Signal Analysis option. If you are using a one-stage signaling where the signal is derived from a surrogate, use the Referential Trading Signal Analysis option.

The real-world two-stage sentiment augmented trading signals will be plotted atop the sentimentscape or referential sentimentscape at their respective time horizon and lag fractions. A brief summary of the signal analysis for a trading system is shown when moving the mouse over the special point representing that particular trading signal. The full signal analysis, including the equity curve, is shown when clicking on the point representing that particular trading signal.

This procedure can only be used in conjunction with signal-bearing data files written from the financial trading platform environment, such as TradeStation. Since no link is preserved between the ASCII data file and the program logic generating the trading signal, you must exercise caution when using this procedure in standalone mode. For TradeStation, this Advanced Trading Signal Analysis... procedure should only be used with data files written using the TSAdvSigEval or a derived analysis technique.

An error message will be generated in an attempt is made to import a data file that does not contain encoded signal information. Up to 15 trading signals are encoded in the Flags field of the ASCII data file.

If the File menu's Open Data... is first used, data will be available as soon as this option is selected. Otherwise, a file must be selected whose data will be used only for this specific procedure and automatically cleared when this procedure is closed.

Once the data are successfully imported, the following dialog is presented:

dialog15.png

The items in the parentheses are the input names assigned to the equivalent TradeStation analysis technique, TSAdvSigEval.

Data Streams

The (TradedEntity) input specifies the specific data stream to be traded.

The (SignalEntity) is the data stream to be used as the surrogate, as the reference upon which the primary trading signal will be generated.

The (SentimentEntity) input specifies a data stream that is processed to create the positive sentiment windows where only long positions are permitted, and the negative sentiment windows where only short positions are allowed. For this procedure, a specific SentimentEntity must be specified.

The SentimentEntity can be any entity that reflects the sentiment associated with the traded entity. In sentiment-augmented signaling, the entity to be traded can be different from the entity used for the sentiment signaling. When this is true, the SentimentEntity is usually an overall market index or a surrogate for such, or a sector index or ETF. When the SentimentEntity is the same as the TradedEntity, the sentiment signal draws its sentiment states from the wide-sense or more global behavior of the entity and the primary signal from a more local behavior of the entity.

Sentiment Parameters

The EM Length (SentimentLen) is the EM Length (time horizon or information content) of sentiment signal. Typical values range from 20-80 bars. The higher the value, the longer in time the long-only and short-only windows will be.

The SentimentLen sets the time horizon for the wide-sense sentiment signal. Note that no sentiment filtration occurs if the EM length in the tradescape is equal to or greater than the SentimentLen. If the sentiment filtration is particularly effective, there can be an abrupt or sharp transition in the sentimentscape surface near the SentimentLen.

The lag added to the sentiment signal for each point in the surface will be identical in lag fraction to the lag for that point in the tradescape surface. For example, if the point in the surface has an EM length of 20 and a lag fraction of 1, and the EM length for the sentiment filter, as specified in SentimentLen, is 80, the idealized primary signal is offset by a lag of 20 and the idealized sentiment signal is offset by a lag of 80.

Asymmetry

The asymmetry is the ratio of the information content used for the upside transitions (turns to the upside) relative to the downside transitions (turns to the downside). A quick to enter but slow to exit long signaling system has an asymmetry less than 1. A slow to enter but fast to exit signaling system has an asymmetry greater than 1. Typical signal asymmetries are between 0.25 and 4. The turtle HH=55 LL=20 breakout system is an example of an asymmetric signaler, one that for long trades is slow to enter and fast to exit, a signal asymmetry of 55/20=2.75.

If the Symmetric (Asymmetry=0) box is checked, a symmetric sentimentscape is generated.

If the Specify (Asymmetry) is checked, you must enter an asymmetry between 0.1 and 10.

In the tradescape plot, only a single EM length is used for the X axis position. The interpretation of an EM length of 20 would be as follows for an asymmetry of 0.5. The EM signal used to generate the upside transitions (the entries for a long system) will be 20*sqrt(0.5)=14.142. The EM signal used for the downside transitions (the exits for a long system) will be 20/sqrt(0.5)=28.284. The asymmetry is thus 14.142/28.284=0.5. While the point on the tradescape is plotted at an EM length of 20, the actual lengths used to generate the turns for the composite EM signal are 14.142 and 28.284. Note that the EM length assigned to an asymmetric signal is not the average of the two lengths.

Note also that an asymmetry of 1.0 generates the standard (symmetric) tradescape.

Data Range

The Analysis Bars (WalkFwd) entry is is the count of bars, from last non-reserved bar backward in time, to use for the analysis. In order to accommodate all of the time horizons in a tradescape, do not set this value below 250. If a value is specified that is greater than the amount of data available, all of the data that is present is used.

The Reserved Bars (Reserved) entry is the count of most recent bars to reserve for any walk-forward you may wish to independently carry out. These data are disregarded in the analysis. A value of 0 processes all data through the most recent bar.

Tradescape Type

Use Long Trades (DoShort=0) for a long-side only tradescape analysis and Short Trades (DoShort=1) for a short side analysis.

Day Trading

The Mathematically Remove Overnight/Weekend Gaps (Degap=1) option removes all overnight/weekend gaps in data for instances where positions are always closed prior to a trading session's closing bar.

If this option is set, a check is made to see if the same day fraction of data is greater than 80%. If this criterion is met, as with hourly or finer bar densities, the gap across days is mathematically removed. The price activity from the prior day's closing bar through the end of the first bar of the next day will be zeroed. This means the two bars will share the same closing values. The adjustment is based on the differential in closing prices and is applied to the open, high, and low values as well.

The adjustment is made backward in time so that the most recent bar's close will be the current price. The removal of gaps moving backward in time can result in negative prices. In such an instance, the lowest low in the de-gapped data will be set to 0.01 and all prices will be shifted accordingly.

Signal Encoding

If you wish to manually decode or encode the trading signals in a Trading Sciences ASCII data file, we have a description and Excel examples.

Complexity

A trading signal that uses two-stage sentiment signaling is appreciably more complex than a one-stage signaling that is done directly on the price of the traded entity. Add the option of generating the primary signal using a surrogate and the option of having the sentiment windows drawn from a separate sentiment entity, and the complexity is yet greater. The sentimentscape or referential tradescape which forms the background for this trading signal analysis is representative of what a fully accurate, though lagged, primary and sentiment composite signal would look like, when trading the target entity strictly for the order in its price movements.

The EM signal for the primary entries and exits are based on the order present at the shorter time horizon and the sentiment windows on the order derived from what is typically a much longer time horizon. We make this point of complexity because the errors in accuracy can be compounded from the two components that combine to produce the composite trading signal. There are two signals that will have some measure of inaccuracy with respect to order. Further, the sentimentscape surface assumes that the two components have the same lag fraction relative to their respective time horizons. In many two-stage signaling systems that use MA crossovers for the sentiment windowing that assumption will likely be invalid.