Trader Edge

At the end of every article, I solicit topic suggestions from readers.   The following is recent request from Pete Kasper, which provided the inspiration for this article:

I continue to enjoy your cogent articles week after week. I’d like to respond to your request for topics for future articles. As a retired physicist I tend to favor analysis systems that use statistical backtesting and walk-forward testing. In monitoring price series it is clear that basic technical analysis tools such as support and resistance lines and even trend lines are powerful tools but don’t seem to be adaptable to computerized testing. The proposed topic then is “How to work with support, resistance and trend lines in an otherwise back testing system."

I agree with Pete that trendlines are very powerful tools; unfortunately, they are notoriously difficult to program for use in systematic strategies.  I use trendlines regularly, but have always drawn them by hand.  I have thought about automating this process before, but it never made it to the top of my project list - until now.  Pete's request gave me the incentive to do some preliminary work on the topic.

I recently posted an article titled "How to Draw Trendlines & Avoid Severe Losses."  In that article, I provide a set of objective, unambiguous rules for drawing trendlines. The following article explains how to use those  rules to generate trendlines on all of your charts. Automatically.  The AMIBroker code segments used to generate automated support and resistance lines are provided at the end of this article.

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