Channel Breakout Logic with Slow Entry and Fast Exit Channels

Summary

The document introduces a channel breakout trend-following setup represented as a finite state machine. It describes two channel speeds: the slower channel supplies the entry signal, while the faster channel supplies the exit signal. This arrangement suggests that the strategy uses a longer lookback to identify a breakout and a quicker signal to close a position, although the document does not explain the state transitions or their exact rules.

The author is trying to understand a matrix from a trading book and asks how to interpret its notation, especially square brackets. The matrix itself is not included in the supplied text, and no backtest, performance evidence, or complete trading instructions are provided. As a result, the document is useful only as a brief description of a trend-following design; the precise meaning of the matrix symbols and the strategy’s behavior cannot be established from this excerpt.

Key ideas

• The described strategy uses a slow channel for entries and a fast channel for exits.
• The rules are represented as a finite state machine matrix.
• The excerpt does not include the matrix or define its square-bracket notation.

Tags

# Understanding the channel break out logic in FSM model by Eugene A. Durenard


# Understanding the channel break out logic in FSM model by Eugene A. Durenard












I am reading and replicating some code from "Professional Automated Trading" by Eugene A. Durenard, Wiley (2013). I'm replicating some of the simpler strategies, and one way he presents the logic of his strategy is through these FSM (finite state machine) matrices. He never explains how to read these and I can kinda reverse engineer it, but it would be really helpful if someone here could explain to me how to read the below picture so I'm totally sure. My absolute biggest confusion is the use of square brackets?

Below you have a picture of the FSM matrix for channel breakout trend following using slow and fast channel. Slow channel is used for entry and fast channel is used for exit.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.