Ultimate Algorithmic Trading System

FIGURE 2.11
Source: TradeStation
The CCI system detecting a downturn in the Eurocurrency.
below a certain level for the past three days. If the lowest myCCIVal for the past
three days is greater than 100, then we know that the CCI did not dip below 100
during that time period. Trend detection occurs when the CCI stays in an extreme
territory for several bars. This system is triggering a buy signal when the 9-day
smoothed CCI stays above 100 for three days straight. The sell signal is triggered
if the indicator stays below −100 for three days straight. Since we are dealing with
a trend-following approach, the profit objective as well as the stop loss has been
increased to five and three times the average true range, respectively. As you can
see, the instructions for entries are contained within a very precise if–then construct
and therefore can be represented by a flowchart. Again, this flowchart is so similar
to the RSI, stochastic, and CCI #1 flowcharts that it would be terribly redundant to
show it. Figure 2.11 does show how the system is more than capable of capturing
the recent downturn in the Eurocurrency.
Table 2.6 shows the performance of the CCI Trend-Follower algorithm.
Gerald Appel’s MACD—Moving Average Convergence
Divergence
The Moving Average Convergence Divergence (MACD) indicator was created in
the late 1970s by Gerald Appel. Basically, the indicator plots the difference between
a fast and slow exponential moving average. The difference line is usually plotted
oscillating around a zero line. Another line representing a smoothed version of the
difference line is plotted as well. The smoothed version of the difference between
the two moving averages is considered the trigger. Action is usually taken when
the trigger crosses the difference line. In addition, it is common to see a histogram
representation of the relationship between the difference line and the trigger. The
MACD is a quick snapshot summary of the relationship between two different
length-moving averages.
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STOCHASTICS AND AVERAGES AND RSI! OH, MY!
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