Combining the Tabs
In this chapter the main concepts of building the trading systems are explained. This phase involves the combination of the six Tabs. The outcome will be the trading signals.
The six Tabs are considered together now and, based on their signals, a decision is made about the trade to make.
Here we describe how the build between the Tabs is computed, from the simplest cases to the more complex.
Combining the Tabs
When the Tabs are ready, conceptually something very simple happens. The Tabs are considered together now and, based on their signals, a decision is made about the trade to make.Tab Signals
Remember that the combination of each Tab is an algorithm, whose output is true or false.
That means that each Tab is giving trading signals:
- Long
When true, it gives a long signal, i.e. it says a long position should be opened. - Short
When true, it gives a short signal, i.e. it says a short position should be opened. - Liquidate long
When true, it gives a liquidate long signal, i.e. it says the current long position should be liquidated. - Liquidate short
When true, it gives a liquidate short signal, i.e. it says the current short position should be liquidated. - Stop loss
When true, it gives a liquidate signal, i.e. it says the current position (long or short) should be liquidated, because the stop loss has been triggered. - Take profit
When true, it gives a liquidate signal, i.e. it says the current position (long or short) should be liquidated, because the take profit has been triggered.
Trading Signals
The output of the build phase, when the Tabs are combined, are trading signals.
The possible trading signals are:
- Long
Open a long position.
If currently a short position is open, liquidate it before opening the long position. - Short
Open a short position.
If currently a long position is open, liquidate it before opening the short position. - Liquidate
Liquidate the current position, long or short. - Hold
Hold the current state, i.e. keep the current open position, if any, or carry on with no open position.
Build Computation
In the following, we consider several possible cases, from the simplest to the most complex, describing how the build between the Tabs is computed.Duality
For the sake of simplicity, we typically refer only to the 'long' case; but everything that is said about 'long' holds for 'short', too, with trivial dual considerations. 'Dual' means that it is enough to substitute the word 'long' with 'short' everywhere. This is so also for liquidate long and liquidate short.No Signal
If all the Tabs are false, then the trading system is giving no signals.
In that case, no actions are taken.
So if there was no position open, no new positions are opened.
If there was a long position open, that position is maintained, or held; said another way, the signal is 'hold'.
The same holds for a short position.
So, in order to open or close a trade, there must be a signal that explicitly states so.
Just One Tab Signal
In this sub-section we explore what happens when there is just one Tab signal in a given instant of time, i.e. when just one Tab is true, while all the others are false.Signal Consistent with the Current Trade
If there is just one signal and it is consistent with the current trade, things are straightforward.
For example, if there are no open positions and only the Long Tab is true, a long signal is given and a long trade is opened.
If there are no open positions and only the Short Tab is true, a short signal is given and a short trade is opened.
If there is a long position open and just the Tab Liquidate long is true, the long position is liquidated, by definition.
The same holds true if just the Tab Stop loss or Take profit are true: the position (long or short) is liquidated.
Stop and Reverse
If a long signal is given when there are no open positions, i.e. when the last signal was a liquidate, simply a long trade is opened.
If a long signal is given when the current open position is short, the short position is liquidated first, and then a long trade is opened.
This is called a stop & reverse.
The same holds true for short signals.
Signal Confirming the Current Trade
If there is already a long position open, and the Long Tab is true, it is basically confirming the current trade.
In this case, the signal is simply transformed into hold and the long position is held.
Signals to Ignore
Signal Not Referring to the Current Position
If no positions are open, and there is aLiquidate long signal, that signal is simply ignored, because no long positions are currently open.
Remember that you stated the conditions when a long position should be liquidated in the Liquidate long Tab.
This Tab could be legitimately true even when no long position exists.
Other cases to ignore are for instance if there is a long position open and a signal to liquidate short. The
Liquidate short Tab is referred only to short positions and as there are no short positions open, it must be ignored.
Stop Loss and Take Profit with No Open Position
If no positions are open, Trading Conceiver takes care of everything to avoid signals by theStop loss and
Take profit Tabs. When no positions are open, neither the stop loss nor the take profit exist.
More than One Tab Signal, Coherent
In this sub-section we explore what happens when there is more than one Tab signal in a given instant of time but all of them are coherent.Two Liquidate Signal
If a long position is open and there is more than one signal between:
Liquidate long Stop loss Take profitthey are all saying the same thing: liquidate. So the position is liquidated.
Stop & Reverse
A stop & reverse can happen if the current position is short and a long signal is given, together with any combination of the following:
liquidate short stop loss take profitAll liquidate signals refer to the short position and then we have a long signal. There is no doubt the short position must be liquidated. Moreover, a long position is opened.
More than One Tab Signal, Non-Coherent
In this sub-section we explore what happens when there is more than one Tab signal and some of them are non-coherent. Up to now, things were clear and non-arbitrary, but from now on we introduce some arbitrariness.Both Long and Short
What if both the Long and Short Tabs are true?
The first one says to enter a long position, while the second says to open a short position.
They are clearly conflicting.
In this case, Trading Conceiver takes, arbitrarily, the most conservative action, which is to not have any open position after these signals.
So if no positions were open, the signal becomes hold.
If a position was open, the signal given is liquidate, and the position is closed.