Mizar Research Series Vol. I: Candlestick Bars

Dear Mizarians,

Welcome to the first volume of the Mizar Research Series, where the Mizar team shares knowledge with their community to help them build better algo-trading strategies. Today’s article will be about candlestick bars, which are widely used in the industry to build trading strategies.

Time Bars

Figure 1: Time bars

Since time bars simply sample based on a frequency, they exhibit an undesirable property, where they oversample when there is low trading activity and undersample when there is high trading activity. For example, between 12:30 April 22 and 01:00 April 23, the volume is much higher than between 02:00 April 24 and 14:30 April 24. So one could argue the amount of information in the former is higher than in the latter, but since they are sampled on time this will lead to undersampling and oversampling respectively.

Volume, Tick, and Dollar Bars

Figure 2: Volume bars
Figure 3: Tick bars
Figure 4: Dollar bars

Dynamic Volume, Tick, Dollar Bars

For cryptocurrencies fixing the threshold to a constant level can result in too many bars being too few bars, since the trading activity has changed drastically over time. Therefore, it is desirable to adjust the threshold dynamically, which is how the volume, dollar, and tick bars are created in Mizar. The threshold is adjusted daily based on 1/50th of the moving 30-day average. In Figure 4 this behavior can be seen live when we look at the volume, we see that the volume is constant, but it changes slightly after midnight, which reflects the dynamic update of the threshold.

Also, the bars in Mizar do not only reflect the open, high, low, close, and volume as is typical with candlestick bars. At Mizar, all tick data is ingested, and therefore it is possible to aggregate information based on buy and sell orders and count the number of trades. Bars created by Mizar reflect much more information than normal candlestick bars, which we hope will give our users a competitive edge when developing their strategies.

Conclusion

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