Hi folks,
Been offline for a while apologies for jumping in.
A couple of questions strike me about this discussion, and forgive me for any ignorance displayed.
Hey swingtraderkk (I knew I missed somebody
) and thanks for stopping by! Your comments are not ignorant, find my answers below.
1) Why do you need to construct renko charts? I would have thought that any renko, grid or range bar type strategy could be implemented in code with variables and arrays focusing on the rules without having to shoehorn it into zorros bars? The advantage of this is it allows an evaluation of any renko entry/exit signal vs what the actual bar price is doing. I've toyed with Renko and Kagi charting on my discretionary trading and the big problem for me was where the price really was when the signal fired on the Renko/Kagi. I actually found them more useful for exits than entries, but drifted out of using them.
Having renko implemented as indicator is certainly not a bad advice, and could be done relatively easily. You even have my demo code somewhere in this thread that you could polish a bit and do exactly that. But here's the problem. Consider what you do in the research phase, for example if you want to develop new strategy based on classic bars and RSI (MACD, or whatever). On the screen you have price chart above, and indicator chart below. You look at both and decide for example to buy if RSI is below 10, and sell if it's above 90. You enter the data into your script, backtest, get lousy results
, then get back to the chart and try to deduce what went wrong. you retune based on your findings, maybe add another indicator, rinse and repeat. But the whole time you're quite dependent to have both price and indicator on the screen and in sync (time wise) to be able to develop your strategy.
Now consider classic price data + indicator based on renko. You tehnically cannot chart them based on the same X axis (time). Sometimes your renko indicator would keep it's value for many bars in the chart window, sometimes it would like to print 5 bars during the same price bar (when there are rapid market movements) and that is just impossible to chart. The reality is that classic bars and renko (even as indicator) are clocked so differently that you just can't chart them together. And if you can't see them, you can't research.
Of course, if you already have renko based strategy (do you?) you could implement it the way you suggested, visualization is not required if you're just trading it.
2) In abstracting time from price, why not start with fixed number of tick bars, i.e. zorro creates a new bar when it receives a fixed number of ticks. You would obviously need good quality tick data for any backtest. To me conceptually this makes more sense, as more bars will be drawn when something is actually happening, and few will be drawn when nothing is happening. I think this approach would be more compatible if the ultimate aim is not just the renko,kagi,strategies themselves but in applying the rest of zorro's tools and indicators.
Bars that are clocked on number of ticks is yet another type of bars. I considered them in the past, but discarded the idea as not easily implemented for forex market specifically. The reason being I do have reasonable quality tick data and I can see from it how market drastically changed between 2007. and 2013. I.e. the liquidity improved, spreads narrowed, so there's a whole lot more ticks per time period in recents years than before. So I think it would skew the bars. Of course, some kind of heuristics could be implemented to use different threshold for different years, but it still looks like too much magic to me.
Finally, even if I claim that tick data I have is of reasonable quality, I'm not forgetting that it's the data from one specific broker. Only one! So those are ticks that depend on what liquidity providers that one broker had in various time periods, how many customers etc... I just don't believe that number of ticks in specific time periods is really a good representation of the entire forex market. That's why I discarded your idea in the beginning and don't intend to pursue reseraching bars that tick on number of price ticks ever. At least not to trade forex market... I reserve the right to reconsider if I switch to futures market any time soon.
3) what is the trade frequency you are looking for? (I'd like to ask what timeframe but that makes no sense ;-) ) i.e. strategies with the same trading frequency as say a daily or a 1 min traditional price/time strategy. If it is the latter my gut tells me that time of day would still matter.
It still makes some sense to be interested in the timeframe, because statistically you can determine the average time period of each range bar. As I already shared, for the bars that I synthesized last, for exactly that kind of bars and exactly 5 pips chosen as a parameter, it's quite easy to estimate that they tick at about 5 minute frequency. Previously I also played with 10 pips renko and CBR bars.
If you ask me personally what I look for, well I don't know. I'm looking for a timeframe that is most profitable.
Jokes aside, I'm looking for a lower timeframe so I have more data available for backtesting, therefore statistically more valid results, more market conditions covered etc... Also, it's easier to later monitor how that system works in a live market if you have say 10 trades a day than if you have 1 or 2 trades a week. We're getting old on a daily timeframe, if you understand what I mean.
So, the lower timeframe the better, although I'm not stupid, the lower we go it seems harder (or impossible?) to find market inefficiencies and extract alpha from them (commissions are more important, slippage etc..). I would generally be very happy to someday have a system that works somewhere in the 15min - 1hour timeframe.
You now reminded me of one frightening fact that I discovered while playing with all these interesting bars. If 5pips bars of my current type are about 5min, could you tell the average timeframe of 10pips sized bars? It's simply (10/5)^2 * 5min = 20 min EXACTLY. The precision goes way below 1% error and it's consistent in a very wide range of values. This goes to explain how random forex market really is and what we are up against. When I first discovered this rule (by an accident, of course) I was in a bad mood for the rest of the day.
