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2019issue C0823

Bar size as a mechanical system construction constraint

A mechanical strategy may be specified on any bar interval. Shorter bars typically add price noise and raise turnover, which lifts the cost hurdle each completed trade must clear. Bar size is tested with the full entry, exit, and abstention procedure rather than discarded in advance.

  • A mechanical strategy may be specified on one-minute, three-minute, or daily charts; construction is not limited by a minimum valid timeframe.
  • Shorter bars typically contain more price noise, which can weaken indicator calculations and produce frequent opposing entry and exit signals.
  • Higher turnover on one-to-five-minute bars raises the round-trip cost hurdle, while a longer holding period usually makes those costs a smaller share of the outcome.
  • Bar size should be tested across short and long intervals as part of the full entry, exit, and abstention procedure.
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Current trackMechanical trading system322 readings

Bar size is an open construction choice

A mechanical strategy may be specified on any bar interval, including one-minute, three-minute, and daily charts. Construction is not limited by a minimum valid timeframe.

Bar size is the chart interval that supplies prices to the entry, exit, and abstention rules.

Shorter bars raise noise and shrink range

Shorter bars typically contain more price noise. That short-horizon back-and-forth movement can weaken many indicator calculations and produce frequent opposing entry and exit signals. When noise flips the rule output, the result can be a whipsaw: a rapid pair of buy and sell signals.

Very short bars often show a smaller dollar range between the highest and lowest prices than daily bars. Daily bars more often display clearer directional movement and larger ranges.

Turnover lifts the cost hurdle

Every completed trade carries commissions and, in most cases, slippage. Higher turnover on one-to-five-minute bars raises the cost hurdle the procedure must clear. Round-trip cost is the commission plus typical slippage charged to open and close one position.

Using an illustrative mini S&P round-trip cost of about 25 dollars per contract, five short-bar trades in a session create a 125-dollar cost load. Five trades spread across a week on daily bars leave more time for each result to absorb costs.

Holding period changes the cost share

Holding period is how long a position stays open once a signal is taken. As holding period lengthens, the resulting profit or loss is typically larger, so per-trade costs become a smaller share of the outcome.

Test short and long intervals as one procedure

Construction choices that can reduce costs include lower-commission routing, exchange-seat arrangements, and limit orders. A limit order can cut slippage in exchange for a less certain fill.

Bar size should be tested across both short and long intervals rather than discarded before the full entry, exit, and abstention procedure is evaluated.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
19 of 22 in the Mechanical trading system track
202059-59 pp.Next on Mechanical trading systemInterrogating mechanical system listings as one procedureA mechanical trading system is a complete, pre-specified procedure that turns rule-inputs, market state, and execution constraints into buy, sell, or stay-out signals.
All readings on this track · 22 readings
  1. 1985Treat a shared mechanical printout as a public script
  2. 1988Pessimistic margin ranking for mechanical systems
  3. 1991From a differenced-average sketch to coded rules
  4. 2003Commodity enthusiasm is not a complete system
  5. 2005Reader surveys as system evaluation checklists
  6. 2008Critiquing unchanged mechanical signals in evolving markets
  7. 2010Read a mechanical trading system catalog as a specification checklist
  8. 2011Specify mechanical system signals as one testable procedure
  9. 2012Treat a packaged mechanical system as one inspectable procedure
  10. 2013Mechanical trading systems as complete signal procedures
  11. 2013Testable cycle rules as one procedure
  12. 2014Evaluate mechanical trading systems as one procedure
  13. 2015Mechanical trading systems as one testable procedure
  14. 2016Evaluating mechanical trading systems as testable procedures
  15. 2016Reading a systems catalog as one mechanical procedure
  16. 2018Mechanical systems as testable signal procedures
  17. 2019Treat mechanical system listings as specification audits
  18. 2019Match the automation stack to mechanical system constraints
  19. 2019Bar size as a mechanical system construction constraint
  20. 2020Interrogating mechanical system listings as one procedure
  21. 2020Mechanical systems still need emotion rules
  22. 2020Comfort, not theory, keeps mechanical rules in use
By fieldSystem design203 readingsBy year2019140 readings
All 322 readings tagged Mechanical trading system
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