Example script with explanation
Code: Select all function run()
{ var *Price = series(price());
var *Trend = series(LowPass(Price,1000));
Stop = 2*ATR(100);
if(valley(Trend)) enterLong();
else if(peak(Trend)) enterShort(); }
At the begin we notice two strange lines that look similar to var definitions:
var *Price = series(price());
var *Trend = series(LowPass(Price,1000));
However unlike var definitions, they have an asterisk '*' before the name, and are set to the return value of a series() function call. We define not a single variable here, but a whole series. (C++ programmers might notice that we in fact define a pointer, but that needs not bother us now). A series is a variable with a history - the series begins with the current variable value, then comes the value the variable had one bar before, then the value from two bars before and so on. This is mostly used for price curves and their derivatives. For instance, we could use a series to take the current price of an asset, compare it with the price from 1 bar before, and do some other things dependent on past prices. The series is the ideal construct for such price calculations.
The current value of a series can be used by adding a [0] to the series name; for the value from one bar before add a [1], for two bars before add a [2] and so on. So, in Alice's code Price[0] would be the current value of the Price series, and Price[1] the value from 1 hour ago. Many trade platform languages - for instance, EasyLanguage - support series this way; usually indicator, statistics, and financial functions all use series instead of single variables. We'll encounter series very often in trade scripts and will become familiar with them.
The series() function can be used to convert a single variable to a series. The variable or value for filling the series is normally passed to that function. However, we're not using a variable here, but the return value of a function call. var *Price = series(price()); means: define a var series with the name "Price" and fill it with the return value of the price() function. We've learned in the last programming lesson how to 'nest' function calls this way, passing the return values of functions as parameters to other functions.
The price() function returns the mean price of the selected asset at the current bar. There are also priceOpen(), priceClose(), priceHigh() and priceLow() functions that return the open, close, maximum and minimum price of the bar; however, the mean price is usually the best for trend trading strategies. It's averaged over all prices inside the bar and thus generates a smoother price curve.
var *Trend = series(LowPass(Price,1000));
The next line defines a series named "Trend" and fills it with the return value from the LowPass function. As you probably guessed, this function is the second order lowpass filter. Its parameters are the previously defined Price series and a cutoff value, which Alice has set to 1000 bars. 1000 bars are about 2 months (1 week = 24*5 = 120 hours). Thus the lowpass filter attenuates all the wiggles and jaggies of the Price series that are shorter than 2 months, but it does not affect the trend or long-term cycles above two months. It has a similar smoothing effect as a Moving Average function, but has the advantages of a better reproduction of the price curve and less lag. This means the return value of a lowpass filter function isn't as delayed as the return value of a Moving Average function that is normally used for trend trading. The script can react faster on price changes, and thus generate better profit.
The next line places a stop loss limit:
Stop = 2*ATR(100);
Stop is a predefined variable that Zorro knows already, so we don't have to define it. It's the maximum allowed loss of the trade; the position is sold immediately when it lost more than the given value. The limit here is given by 2*ATR(100). The ATR function is a standard indicator. It returns the Average Price Range - meaning the average height of a candle - within a certain number of bars, here the last 100 bars. So the position is sold when the loss exceeds two times the average candle height of the last 100 bars. By setting Stop not at a fixed value, but at a value dependent on the fluctuation of the price, Alice adapts the stop loss to the market situation. When the price fluctuates a lot, higher losses are allowed. Otherwise trades would be stopped out too early when the price jumps down just for a moment.
A stop loss should be used in all trade strategies. It not only limits losses, it also allows Zorro's trade engine to better calculate the risk per trade and generate a more accurate performance analysis.
The next lines are the core of Alice's strategy:
Code: Select all if(valley(Trend))
enterLong();
else if(peak(Trend))
enterShort();
C source code of the LowPass, peak, and valley functions:
Code: Select all var smoothF(int period) { return 2./(period+1); }
var LowPass(var *Data,int Period)
{
var* LP = series(*Data,3);
var a = smoothF(Period);
var a2 = a*a;
return LP[0] = (a-0.25*a2)*Data[0]
+ 0.5*a2*Data[1]
- (a-0.75*a2)*Data[2]
+ 2*(1.-a)*LP[1]
- (1.-a)*(1.-a)*LP[2];
}
BOOL peak(var* a) {
return a[2] < a[1] && a[1] > a[0];
}
BOOL valley(var* a) {
return a[2] > a[1] && a[1] < a[0];
}
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