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Backtesting using Renko charts


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Backtesting using Renko charts

  #1 (permalink)
 karsat55 
washington,dc
 
Experience: Advanced
Platform: ninjatrader
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Hi
Please post your experiences on backtesting and automation using Renko charts ?

So backtesting results using Renko charts totally inaccurate ?

Please post your experience with Renko charts.

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  #2 (permalink)
 RM99 
Austin, TX
 
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karsat55 View Post
Hi
Please post your experiences on backtesting and automation using Renko charts ?

So backtesting results using Renko charts totally inaccurate ?

Please post your experience with Renko charts.

I consider myself a master at backtesting with renko and all the associated pitfalls. What are your questions?

"A dumb man never learns. A smart man learns from his own failure and success. But a wise man learns from the failure and success of others."
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  #3 (permalink)
 RM99 
Austin, TX
 
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We'll continue this discussion about backtesting on the standard renko chart, but I highly recommend artificially creating your own renko bars on Kase bars.

Kase bars will show you the gaps. You can artificially create the bars using minute bars, but as you know, a lot can happen in a single minute so there are large minute bars that won't capture all that's happened inside the move (i.e. a minute bar that's several bricks high/low might have a couple of opposite bricks inside of it that you won't see).

Artificially creating the bars will also allow you to see the true high, true low and all the movement inside the bar (you'd be surprised how many bricks bounce to and fro before creating a new brick).

"A dumb man never learns. A smart man learns from his own failure and success. But a wise man learns from the failure and success of others."
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  #4 (permalink)
 RM99 
Austin, TX
 
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Mastering renko bricks will also give you a very concrete/solid understanding of just how random the market is.

With very little "edge" or variance, the odds (over a large sample set) of the price moving one direction or an equal amount in the other direction, are virtually equal...this particularly holds true for small increments. Obviously, when you start getting very large/long term, the distribution becomes a little biased...(i.e. if you're sample set is a year and the instrument fell overall on the year, you'll have a slight bias for red/down bricks).

That's not exactly groundbreaking, but it is profound when you want to "test" or verify that the market is truly random, especially the lower the increment. (with respect to ONLY price movement).

The string distribution DOES however vary.....depending on the harmonics of the instrument and the relative volatility at that moment. So even though it's random over the entire sample set, there are strings of events that bunch together that you can capitalize upon. Especially when you establish the harmonic center and then move away from the center.

You'll find that when you find the middle of the market for your instrument....moving higher brick increments will favor counter trend trades and moving lower brick increments will favor trend trades. (in essence, lower timeframe/increments tend to have more runs/strings of bricks and higher timeframes tend to feature more binary events....up/down/up/down, etc....)

This is a lot of free chicken I'm handing out

"A dumb man never learns. A smart man learns from his own failure and success. But a wise man learns from the failure and success of others."
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  #5 (permalink)
 karsat55 
washington,dc
 
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So by placing an order like this

Sell Short ( "SE" ) next bar at Close[0] limit;


instead of market order at open of next bar will give better backtesting results?

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  #6 (permalink)
 RM99 
Austin, TX
 
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karsat55 View Post
So by placing an order like this

Sell Short ( "SE" ) next bar at Close[0] limit;


instead of market order at open of next bar will give better backtesting results?

I'm not sure on Ninja, Tradestation treats them exactly the same (close of this bar or open of the next) on Renko bricks because again, Renko won't show any gaps.

Additionally, TS allows you set limit order parameters which only fill limit orders if X number of shares/contracts trade better than your limit price, but only for standard bars (not for advanced charts like Renko or Kase or Range).

So for instance, if you wanted to know if you would have likely been filled, and you place a sell order at the top of a green/up bar that then reverses......with standard Renko, there's no way of knowing if you would have been filled, because it cannot account for what the true high was.

The only reason I vary close of this bar or open next bar is to sort out marketposition issues (when backtesting on standard renko). TS will only allow you to "evaluate" strategies based upon close of this bar....going forward or live, it really has no way of identifying the close of a renko brick until a new brick has begun.

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  #7 (permalink)
 RM99 
Austin, TX
 
Experience: Advanced
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Ahhh, I understand your question now.

Yes, you'll have to use this bar close. If you try to execute an order at the close/open of a bar where there's a reversal, it will be different.

For instance, a closing brick (increment of 10) that closes up at 100 and then reverses, in historical terms, if the next bar is a down bar, the open will be at 90 and and the close of that revsere bar will be 80.

So you can see, that even though the true open was at 100 and the true high might have been as high as 109, in backtest, there's really no way for renko to know the missing information until the bar is completed.

I highly suggest just watching renko bars form live/sim for awhile till you get the hang of it.

If you try to backtest using next bar open, your backtesting results are going to be drastically different than reality.

"A dumb man never learns. A smart man learns from his own failure and success. But a wise man learns from the failure and success of others."
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  #8 (permalink)
 RM99 
Austin, TX
 
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"A dumb man never learns. A smart man learns from his own failure and success. But a wise man learns from the failure and success of others."
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  #9 (permalink)
guge789
Beijing P.R.China
 
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RM99 View Post
I consider myself a master at backtesting with renko and all the associated pitfalls. What are your questions?

It seems to me that your know multicharts' renko bar very much. please share some ideas on how can we make a real precise backtesting? or where can we find any indicators that clould help this backtest.

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Last Updated on September 5, 2014


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