TSCI.pngTradescapes Professional Edition


The Tradescapes Professional Edition offers extended analysis options for the financial professional. Each of the options added to the professional version are designed to solve specific problems in entity selection and signal design that are particularly difficult or onerous to to address with any certainty. The intention is to answer these sometimes intractable problems with an assurance that allows you to step forward boldly, knowing that you have answered these issues effectively and confidently.

Surrogate or Referential Signaling

There are two principal reasons to employ a reference as the target or source entity for trading signals that will be applied to a different traded entity.

Difficulty in Ordered Signaling

There are instances where the entity that is being traded is too chaotic to work well with the algorithmic signaling systems you use for your trading. This is usually a product of fat-tail events that often work against any trade that may be underway. There are entities whose price movements to a new trading range occur abruptly. In such cases, algorithms are often fooled in terms of making uneasy entries and exits. If you are using algorithmic signalers that generally rely on order, shoehorning such chaotic movements into such a procedure can be costly. The basic tradescape, where you signal directly on the traded entity, will generally show very little lag tolerance. You can sometimes know in a second or two that the chaos in a given entity is such that you won't achieve any success with those signaling algorithms that operate at specific levels of lag.

If you can find an entity that closely tracks the entity to be traded, without the chaotic movements, the additional lag tolerance may translate into a much more effective signaling, despite the additional 'fuzziness' the two entity system will add. That fuzziness increases with the wide-sense disparities or broad non-synchronous behavior between the two entities. An entity that would be a failure with a given algorithm when traded directly, may be successfully signaled if you can find the proper surrogate. In practice, this is a very challenging problem to solve. How do you select a surrogate? How can you know it is actually accomplishing its purpose? The referential tradescapes reduce a very difficult problem into a very manageable one, and there will be a much higher degree of confidence in any solution.

Basket Trading

One you have experience with basic tradescapes, you will know that entities have their own unique historical signature in terms of sweet spots or time horizons where they can be effectively signaled. Certain entities will favor a faster signaler, others a more patient one. There will be those with little lag tolerance, especially for the more basic signaling algorithms, and others that may be quite forgiving. The idea behind using a single entity to trade a basket of securities is that the entity upon which the signaling is based will be stable, consistent, and as minimally prone to adverse fat-tail events as possible. For example, one may signal on the Nasdaq index, the NQ futures, or the QQQ ETF, and a number of securities in the basket will see an entry and exit in synch with this more robust entity. This is often done with sector indices, or the major securities that often lead a sector.

One trades a basket of securities looking for an edge over the simpler process of trading the master entity directly. The problem here is the unique signature of the different components to be placed in that basket. Even though they may be represented in the overall index or entity, they may signal in very different places were they to be traded independently. Referential tradescapes are a way to determine which entities belong in a basket based on their historical trading landscapes as derived from the intended surrogate or master entity. They not only assess which entities will trade in synch with the overall entity, they will also highlight those whose chaotic behaviors have too little lag tolerance to be usefully placed in such a basket.

Referential Tradescapes

The professional edition offers the same referential procedures (with the exception of the specialty intraday procedure) as the directly signaled routines in the standard edition. Because referential signaling is an advanced trading technique, we kept these procedures entirely distinct and separate so that there is no chance of accidentally using a surrogate or failing to use an intended surrogate when performing tradescape analysis.

Standalone

  TradeStation

Primary Signal

Secondary Signal

Multiple Panels

Purpose

7906.png Referential Tradescape

  TSRefTradescape

Surrogate Entity

None

Different Entities or Surrogates

Study symmetric surrogate signaling of one or more entities or surrogates

7907.png Referential Asymmetric Tradescape

  TSRefAsymTradescape

Surrogate Entity

None

Different Asymmetries or Entities

Study asymmetric surrogate signaling of one or more entities

7908.png Referential Progressive Tradescape

  TSRefProgTradescape

Surrogate Entity

None

Different Time Segments

Study variations in time of the surrogate signaling on one entity

7914.png Referential Trading Signal Analysis

  TSRefSigEval

Surrogate Entity

None

Not Available

Assess a trading signal against the backdrop of a referential tradescape

The referential procedures are completely analogous to the standard ones with the exception that you must specify a surrogate. The Referential Tradescape procedure is the main workhorse. It is invaluable for finding meaningful surrogates and viable candidates that work with a given surrogate. This procedure can take a process that would require days of work, and leave you with no certainty afterward, to a process that can literally be accomplished in minutes, and after the fact you will know you have done everything you can to have the best possible match between surrogates and traded instruments.

The Referential Trading Signal Analyses procedure will evaluate your own real-world signaling algorithm, applying it to the reference, and using those signals to trade the candidate entity selected. The performance is plotted atop the referential tradescape.

Two Stage Sentiment Signaling

There are two principal reasons to employ a two-stage sentiment signaling methodology. In these signalers, a slower time horizon signal is used to determine the direction of trade that is allowed, but this does not actually initiate a trade. The faster signaler then executes only those trades permitted. The slower time horizon signal can be drawn from the traded entity, a type of confirmation signaling at two different time horizons, or it can be drawn from a more global entity, such as a market or sector index that would be a proper reflection of the overall sentiment currently in play for a given entity. Note that this is not referential or surrogate signaling–the primary entry and exit come from directly signaling the entity that is being traded.

Two-Stage Confirmation Signaling

You will at times find two different time horizons within a tradescape where each could potentially be traded. Both may have a strong performance and good lag tolerance, and the progressive tradescapes may show both as being viable across time. When this occurs, it need not be an either-or choice. You can use the traded entity as the target for generating a signal at both time horizons and then the slower signals can open up the long and short (or out of market) trading windows, and the faster signaler will signal the entries and exits.

Without using sentimentscapes, the two-stage tradescape technology, this type of signaling is almost impossible to implement with any confidence. While each component can be designed separately and optimized, and the composite signal can likewise be optimized, the whole problem is very easily overfitted, and confidence after the fact is lacking. In a sentimentscape, both time horizon components will be accurate. There will be no random chance inserted from one signal offsetting by chance the inaccuracies in the other. With a sentimentscape, you can tackle this very difficult problem and emerge with a sense of confidence you have the best two stage signaler that can be designed, and random chance will be minimized.

Two-Stage Sentiment Signaling

This adds another dimension of complexity. The slower signal that sets the allowed direction of the trades must be specified not only for this greater time horizon but also with the entity from which that sentiment will be drawn. The entire universe of financial time series is available. An overall market or sector index may be the obvious choice, but the sentiment may be better reflected in a different entity that leads the one you are trading. There will thus be less lag in the slower signal that sets the bands of allowed direction.

This is a problem that most would deem close to intractable. There are two signals and two entities upon which those signals will be based. The traded entity is the target for the fast signaler, but properly addressing the other three variables can be daunting. A signal designer could literally spend weeks designing and carrying out the different studies. The amount of information that would have to be processed can be immense, even unmanageable if most of the backtests are inconclusive. Confidence after the fact will be hard to come by. Sentimentscapes offer the means to build such a signaler in an astonishingly short time, and with the maximum of confidence in the design. Overfitting isn't a factor.

Two-Stage Referential-Sentiment Signaling

Certain entities will simply be very difficult to signal. As a financial professional there may be considerations where such a challenging entity must be placed under active trade management. There may be instances where a surrogate signaler can be used for the primary entry-exit transitions and a sentiment signaler with yet a different entity from the entity under trade can be used to represent the overall market sentiment. In this unique case, we have two signals, the two entities to which they are applied, and the third entity that is the one actually traded. In the past, we would have regarded this problem as fully intractable. The amount of effort needed to reach a successful signaler would be prohibitive, and confidence would be close to zero.

In a single procedure, referential sentimentscapes make this possible. You can know quite quickly what can potentially work. The task of designing a real-world signal that accommodates this complexity can be challenging, but one can begin know what has the potential of working and there is a reference point. The difficulty with any measure of complexity is the compound effect of inaccuracy in the real-world signals. One can manage the fuzziness of the surrogate signaling. One expects the scatter of the lag in the real world system to increase, and also the inaccuracy in terms of catching the ideal turns in the price movements. With a two stage confirmational signaling, the higher lag in the slower state component will have a price that is hopefully offset by avoiding market states ill-favored for the direction of one's trade. Within sentiment signaling, there is the inaccuracy and fuzziness as well as the higher lag of the of slower sentiment signaler. In referential-sentiment signaling, that fuzziness and corresponding inaccuracy and scatter in lag exists on both components of the signaler.

Sentimentscapes

The professional edition offers these two-stage sentimentscape procedures.

Standalone

  TradeStation

Primary Signal

Secondary Signal

Multiple Panels

Purpose

7904.png Sentimentscape

  TSSentimentscape

Traded Entity

Sentiment Entity

Different Sentiment Lengths

Study variations in sentiment lengths for two stage signaling of one entity

7905.png Progressive Sentimentscape

  TSProgSentimentscape

Traded Entity

Sentiment Entity

Different Time Segments

Study variations in time for two stage signaling of one entity

7909.png Referential Sentimentscape

  TSRefSentimentscape

Surrogate Entity

Sentiment Entity

Different Sentiment Lengths

Study variations in sentiment lengths for two stage surrogate signaling of one entity

7910.png Referential Progressive Sentimentscape

  TSRefProgSentimentscape

Surrogate Entity

Sentiment Entity

Different Time Segments

Study variations in time for two stage surrogate signaling of one entity

7912.png Intraday Sentimentscape

  TSIntraSentimentscape

Traded Entity

Sentiment Entity

Different Bar Reductions

Study different bar rates for two-stage signaling of one entity

7915.png Advanced Trading Signal Analysis

  TSAdvSigEval

Traded Entity

Sentiment Entity

Not Available

Assess a trading signal against the backdrop of a sentimentscape

The Sentimentscape procedure is the main tool for discovering the sentiment time horizon and the sentiment entity for the signal design.

The Advanced Trading Signal Analyses procedure will evaluate your own real-world compound signaling algorithm against a sentimentscape or referential-sentimentscape.

Book-Half Partial Exits

Professional traders sometimes employ a strategy of booking a portion of the profit within a trade when a fixed percentage gain is realized. This is often a very simple and effective form of reverse-pyramiding.

The Book-Half Rationale

Booking half of one's profit at a fixed percentage gain locks in half the current return from the equity under trade and still allows a portion to continue in the trade. By having this function applied repeatedly within a long trend, the equity can be minimal at the point where the turn occurs. The return is diminished, but the pain, as defined by drawdowns or retracement can also be dramatically diminished.

Book-Half Tradescapes

The purpose of Book-Half tradescapes is to answer the question as to whether or not this type of reverse pyramiding can significantly improve reward-pain. If such occurs with the accurate signaling used within the tradescape, there is a fair chance it may be even more of value in real-world signals that have less accuracy in catching the turns. As one would intuit from the nature of this approach, entities that suffer chaotic behavior at the turns in the signal are those most likely to benefit. A variety of percentage levels are shown in multiple panels. If there is a benefit in reward-pain, it is often a dramatic one visually. It is an especially valuable technique when the drawdowns in equity must be kept as small as possible.

Standalone

  TradeStation

Primary Signal

Secondary Signal

Multiple Panels

Purpose

7920.png Book-Half Tradescape

  TSBookHalfTradescape

Traded Entity

None

Different Book Half %

Study book-half money management strategy on one entity

Book-Time Exits

Professional traders sometimes employ a simple strategy of booking a trade at a fixed point in time if a stop does not otherwise occur.

The Book-Time Principle

If an entity is particularly hard to signal in its exits, it is possible one can find a solution by exiting before the trade would on average typically turn. The principle is a basic one. There is a certain entry edge from the accuracy of the signaler's entry transitions, and this will be at a maximum some count of bars into the future. By trading a timed-exit one can significantly avoid the lag issue. One often exits before the turn even begins to occur. This may be inelegant, and it may miss a portion of the return, but the strategy can self-correct and re-enter if the signal is still favorable after a fixed count of bars that would seek to represent the period where the trend would on average be expected to have ended.

Book-Time Tradescapes

The purpose of Book-Time tradescapes is to answer the question as to whether or not this type of exit can effectively deal with entities that are otherwise onerous to signal for exits. If you are having trouble signaling a given entity with an exit signal that is based on price movements, these tradescapes will present the trading landscape for timed exits. A variety of bar times for the exit are shown in multiple panels. What you may find surprising is the measure of lag tolerance and the many timings that actually work. Such a system will necessarily be fuzzy, as there is a limited signaling intelligence in the exit, but it can sometimes be quite effective with difficult to signal entities.

Standalone

  TradeStation

Primary Signal

Secondary Signal

Multiple Panels

Purpose

7921.png Book-Time Tradescape

  TSBookTimescape

Traded Entity

None

Different Time Exits

Study timed exit strategy on one entity

Customizable Backtest Engine

The professional version exposes the backtest engine behind the various tradescape analyses.

Starting Equity Amount and Equity Model

The backtest engine can be customized for three different equity models. These can dramatically impact the reward-to-pain estimates:

Amt is Initial Equity-All Equity Invested in Each Trade
Amt is Fixed Equity Invested in Each Trade
Amt is Fixed Shares Invested in Each Trade


Trading Costs

A fixed Cost Per Trade and a Spread/Slippage (%) can be specified.

Trade Timing

This is also another way to account inefficiency in execution:

Trade Close - Value and Execution Taken Just Before Close
Trade Close at Open of Next Bar - Value at Close, Execution Next Bar's Open
Trade Close at HL of Next Bar - Value at Close, Execution Midpoint of Next Bar
 

Trade Stops

Unlike the previous customizations, this option alters the actual tradescape signals. The stop is set with the Risk % for Stop and a Cooling Period (bars) accompanies a stop out. There are six different types of stops:

Bar % Intrabar-An adverse % from Bar Open Signals Intrabar Stop
Static % Intrabar-An adverse % from Entry Price Signals Intrabar Stop
Trailing % Intrabar-An adverse % from HH or LL Since Entry Signals Intrabar Stop
Bar %-An adverse % from Bar Open to Bar Close Signals Exit at Close of Bar
Static %-An adverse % from Entry Price to Bar Close Signals Exit at Close of Bar
Trailing %-An adverse % from HH or LL Since Entry to Bar Close Signals Exit at Close of Bar

 

Trade Signaling

This option also alters the actual tradescape signal:

Signal is Based on Close of Bar
Signal is Based on HL of Bar
Signal is Based on HLC of Bar
 

Automatic EOD Portfolio Generation

Whenever incoming daily (EOD) data contains multiple entities, a equal weight portfolio of all entities (independent reference and sentiment entities excluded) can be automatically generated and made available to the backtest engine. In the various tradescape procedures that support EOD data, you may specifically select the portfolio, or for those options that generate a panel of different entities, the portfolio will be included as the last panel.

These backtest engine options offer the means to study the impact of these settings on the ideal signaler used in the tradescape system. In particular, we felt it a very useful approach for determining the most efficacious trade timing, stop levels and types, and signaling variable.

Overfitting and 'Touching the Data'

Experienced professionals understand the reality of random luck and the dangers inherent in overfitting. If you process a thousand different referential entities against an energy company, there is a certainty you will find a candy company or a health-care entity or another unrelated entity that tracks almost perfectly. The features we have included in our professional edition of Tradescapes acknowledge the importance of 'touching' the data to be traded as minimally as possible in the process of signal design. We consider it essential. In our tradescapes paradigm, we 'touch' the data 'one' time whenever we perform a full-accuracy trading map or a panel of such maps. Each tradescape analysis is designed to represent what we regard as a single 'touch' of the data.

You touch the data once to determine the time horizon to trade and to see how good you must be with your signaler in terms of the lag tolerance you are granted for that entity. That is often as far as you need to go. You must still find or build the real-world signal that delivers that time horizon and lag fraction, but the design is over after a single touch of the data. The direct-signaled options in the standard edition manage exactly this.

For more challenging signaling, you may again touch the data each time you explore a surrogate. As fitting a professional feature, we don't screen all possible entities. That invites random chance. You must use your intuition and common sense and select only those surrogates that are likely to have a valid relationship.

You may touch the data a second time to explore a sentiment signal's time horizon when used in a composite signal, but the multiple panels should show close to the same time horizon that you would select as the slower zone from the original tradescape map. You must touch the data again for each sentiment entity, but an experienced professional is likely to know which entities are likely to represent the overall sentiment of the entity under trade.

You may touch the data once more to explore continuous leverage position sizing, or to see if the book-half strategy can improve reward-pain, or if a difficult to signal entity can be managed with timed exits, but in all cases, the count of touches will be small.

The tradescapes professional version offers advanced trading science, but we go out of our way to avoid the pitfalls of overfitting and overoptimization. We 'tune' a signaler for the robust time horizon we target. We may further 'tune' it to decrease the lag. We 'tune' a surrogate or sentiment selection for an improved lag tolerance or reward-pain in the overall signaler. As a professional we encourage you to stand apart and watch the process closely. We think you will agree that we have streamlined the signal design process so that you are seeing the bare minimum of this 'touching' of your historical data.