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2008issue C051-14

Constructing a zero-lag TMA and heikin-ashi crossover as a complete rule set

Historical reconstructions form a buy or sell condition when a zero-lag TMA of typical price crosses a zero-lag TMA of a heikin-ashi close, then set order size before entry and attach a loss bound that does not wait for the next opposite crossover.

  • The signal is a moving-average crossover of a zero-lag TMA of typical price and a zero-lag TMA of a heikin-ashi close.
  • Typical price is the mean of high, low, and close, while the heikin-ashi close is rebuilt from a bar midpoint, a recursive open, and highs and lows limited by that open.
  • Order size is set before entry as the integer share count a fixed investment can buy at the close, or as 5 percent of equity per order.
  • A loss can exit at the nearer of a 10 percent drop from entry and the lowest low of the 21 bars before entry, while an opposite crossover exits a gain.
Entries in this reading3 entries
Current trackATR position sizing40 readingsTrailing stop93 readingsMoving-average crossover109 readings

The constructed crossover

The constructed signal is the crossover of a zero-lag TMA of typical price and a zero-lag TMA of a heikin-ashi close. That buy or sell condition is a moving-average crossover: it forms when one moving-average series crosses another.

Typical price is the mean of high, low, and close. The heikin-ashi close is rebuilt as the mean of a bar midpoint, a recursive open, and the bar high and low limited by that open, which is the smoothed close with the high and low clipped to that open.

How the zero-lag TMA is assembled

A zero-lag TMA is a triple-exponential average with the gap between the first and second TEMA values added back. In this construction it equals a TEMA of the chosen series plus the difference between that TEMA and a second TEMA of the first TEMA.

TEMA is three times a single EMA minus three times a double EMA plus a triple EMA. Multiple reconstructions use 55 as the default average length.

Because an exponential average depends on the first bar used, one reconstruction withholds plots and trades until four times the Period input have passed.

Size the order before entry

A pre-entry size rule bounds exposure from account allocation, price, and the planned stop distance. Historical reconstructions set that exposure before a trade is placed.

One reconstruction sizes the order as the integer share count a fixed Investment input can buy at the close, so exposure is set before entry. Another reconstruction allocates 5 percent of equity per order.

A loss bound that does not wait for the next crossover

A trailing stop here is a loss bound that stays attached after entry, independent of the next opposite crossover.

The second reconstruction exits a loss at the nearer of a 10 percent drop from entry and the lowest low of the 21 bars before entry. An opposite crossover exits a gain.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
15 of 33 in the ATR position sizing track
201010-15 pp.Next on ATR position sizingUse the session-range percent stop as a pre-trade filterVolatility is uncertainty about future price change, so larger fluctuations raise risk unless stop distance and exposure are reset to the current range.
All readings on this track · 33 readings
  1. 1988Constructing unsigned true range for directional models
  2. 1989Evaluate an always-in ATR breakout as one procedure
  3. 1992Variable lookback and average true range as a trend-filter construction
  4. 1993A random-walk index that uses true range as its scale
  5. 1993A shared harness for trend-filter construction
  6. 1998Finish a trend with a volatility trail, wave permission, and a slower-frame veto
  7. 1999A trend filter that switches tactics and scales ATR targets
  8. 2001Filter higher lows with linear regression, then judge the exit
  9. 2003A Mechanical trading system is a maintained procedure, not only an entry trigger
  10. 2005Construction of a volatility-bounded long entry
  11. 2005Six-zone encoding of open, high, low, and close
  12. 2006Normalized average true range as a pre-entry volatility bound
  13. 2006Chandelier exits, ATR position sizing, and trailing stops
  14. 2007Constructing a rule-based entry with Relative Strength Index and ATR position sizing
  15. 2008Constructing a zero-lag TMA and heikin-ashi crossover as a complete rule set
  16. 2010Use the session-range percent stop as a pre-trade filter
  17. 2011OCA exit groups, trailing limits, and ATR stops
  18. 2011ATR bands around support and resistance for stops and targets
  19. 2013Algorithmic head-and-shoulders construction with bounded exits
  20. 2013Constructing ATR-scaled swing pivots and linear-regression divergence
  21. 2013Constructing volatility bands from typical price
  22. 2014Constructing true-range contraction filters before expansion
  23. 2015Constructing touch plans from modified true range
  24. 2015One checklist for breakout entry and ATR risk
  25. 2015Percentage true-range construction for cross-market volatility filters
  26. 2015Construct a percentage true range for cross-market volatility
  27. 2015Percentage true range as a pre-entry exposure filter
  28. 2016Constructing ATR-filtered breakout entries
  29. 2017A dividend date as a pairs-trading classroom
  30. 2018Range-based volatility as a true-range construction
  31. 2018Moving average support and volatility-band construction
  32. 2018Construct a lifecycle breakout from compression
  33. 2018Pair the book first and let volatility or range set the size
By fieldEntry and exit rules213 readingsBy year200870 readings
All 40 readings tagged ATR position sizing
Also on ATR position sizing5 readings
2005Construction of a volatility-bounded long entry2006Chandelier exits, ATR position sizing, and trailing stops2011OCA exit groups, trailing limits, and ATR stops2013Algorithmic head-and-shoulders construction with bounded exits2016Constructing ATR-filtered breakout entries