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Fed Model Strategy

This macro timing system compares the earnings yield of the equity market to the yield on 10‑year Treasury notes. When stocks offer a higher yield, the strategy holds an equity ETF; when bonds yield more, it moves to cash. A monthly regression on the yield gap forecasts the next month’s value to reduce noisy switches.

At the end of each month the algorithm forecasts the coming month’s yield spread using the last year of data. If the forecast is positive it buys equities, otherwise it holds the cash proxy. Positions change only when the forecast crosses zero, minimizing turnover.

Details

  • Entry Criteria:
    • At month end, regress the last RegressionMonths observations of (EarningsYield - BondYield) and forecast the next value.
    • Buy the equity ETF when the forecast is above zero and the order meets MinTradeUsd.
  • Long/Short: Long equities or cash only.
  • Exit Criteria: Exit the equity position when the forecast yield spread turns negative.
  • Stops: None.
  • Default Values:
    • Universe – [equity ETF, optional cash ETF].
    • BondYieldSym – 10‑year Treasury yield series.
    • EarningsYieldSym – equity market earnings yield.
    • RegressionMonths = 12.
    • CandleType = 1 day.
    • MinTradeUsd – minimum trade value.
  • Filters:
    • Category: Macro.
    • Direction: Long only.
    • Timeframe: Monthly.
    • Rebalance: Monthly.
using System;
using System.Collections.Generic;

using Ecng.Common;

using StockSharp.Algo.Indicators;
using StockSharp.Algo.Strategies;
using StockSharp.BusinessEntities;
using StockSharp.Configuration;
using StockSharp.Messages;

namespace StockSharp.Samples.Strategies;

/// <summary>
/// Fed model strategy that trades the primary instrument when its synthetic earnings yield exceeds a synthetic bond yield benchmark.
/// </summary>
public class FedModelStrategy : Strategy
{
	private readonly StrategyParam<string> _security2Id;
	private readonly StrategyParam<int> _yieldLength;
	private readonly StrategyParam<int> _lookbackPeriod;
	private readonly StrategyParam<decimal> _entryThreshold;
	private readonly StrategyParam<decimal> _exitThreshold;
	private readonly StrategyParam<int> _cooldownBars;
	private readonly StrategyParam<decimal> _stopLoss;
	private readonly StrategyParam<DataType> _candleType;

	private Security _benchmark = null!;
	private ExponentialMovingAverage _earningsYield = null!;
	private ExponentialMovingAverage _bondYield = null!;
	private SimpleMovingAverage _gapAverage = null!;
	private StandardDeviation _gapDeviation = null!;
	private decimal _latestPrimaryGap;
	private decimal _latestBenchmarkGap;
	private decimal? _previousZScore;
	private bool _primaryUpdated;
	private bool _benchmarkUpdated;
	private int _cooldownRemaining;

	/// <summary>
	/// Benchmark security identifier.
	/// </summary>
	public string Security2Id
	{
		get => _security2Id.Value;
		set => _security2Id.Value = value;
	}

	/// <summary>
	/// Smoothing length for synthetic yields.
	/// </summary>
	public int YieldLength
	{
		get => _yieldLength.Value;
		set => _yieldLength.Value = value;
	}

	/// <summary>
	/// Lookback period used to normalize the yield gap.
	/// </summary>
	public int LookbackPeriod
	{
		get => _lookbackPeriod.Value;
		set => _lookbackPeriod.Value = value;
	}

	/// <summary>
	/// Z-score threshold required to open a position.
	/// </summary>
	public decimal EntryThreshold
	{
		get => _entryThreshold.Value;
		set => _entryThreshold.Value = value;
	}

	/// <summary>
	/// Z-score threshold required to close a position.
	/// </summary>
	public decimal ExitThreshold
	{
		get => _exitThreshold.Value;
		set => _exitThreshold.Value = value;
	}

	/// <summary>
	/// Closed candles to wait before another position change.
	/// </summary>
	public int CooldownBars
	{
		get => _cooldownBars.Value;
		set => _cooldownBars.Value = value;
	}

	/// <summary>
	/// Stop loss percentage.
	/// </summary>
	public decimal StopLoss
	{
		get => _stopLoss.Value;
		set => _stopLoss.Value = value;
	}

	/// <summary>
	/// Type of candles used for processing.
	/// </summary>
	public DataType CandleType
	{
		get => _candleType.Value;
		set => _candleType.Value = value;
	}

	/// <summary>
	/// Initializes a new instance of the strategy.
	/// </summary>
	public FedModelStrategy()
	{
		_security2Id = Param(nameof(Security2Id), Paths.HistoryDefaultSecurity2)
			.SetDisplay("Benchmark Security Id", "Identifier of the benchmark security", "General");

		_yieldLength = Param(nameof(YieldLength), 12)
			.SetRange(2, 80)
			.SetDisplay("Yield Length", "Smoothing length for synthetic yields", "Indicators");

		_lookbackPeriod = Param(nameof(LookbackPeriod), 24)
			.SetRange(5, 120)
			.SetDisplay("Lookback Period", "Lookback period used to normalize the yield gap", "Indicators");

		_entryThreshold = Param(nameof(EntryThreshold), 1.1m)
			.SetRange(0.2m, 5m)
			.SetDisplay("Entry Threshold", "Z-score threshold required to open a position", "Signals");

		_exitThreshold = Param(nameof(ExitThreshold), 0.25m)
			.SetRange(0m, 2m)
			.SetDisplay("Exit Threshold", "Z-score threshold required to close a position", "Signals");

		_cooldownBars = Param(nameof(CooldownBars), 8)
			.SetRange(0, 120)
			.SetDisplay("Cooldown Bars", "Closed candles to wait before another position change", "Risk");

		_stopLoss = Param(nameof(StopLoss), 2.5m)
			.SetRange(0.5m, 10m)
			.SetDisplay("Stop Loss %", "Stop loss percentage", "Risk");

		_candleType = Param(nameof(CandleType), TimeSpan.FromHours(4).TimeFrame())
			.SetDisplay("Candle Type", "Type of candles", "General");
	}

	/// <inheritdoc />
	public override IEnumerable<(Security, DataType)> GetWorkingSecurities()
	{
		if (Security != null)
			yield return (Security, CandleType);

		if (!Security2Id.IsEmpty())
			yield return (new Security { Id = Security2Id }, CandleType);
	}

	/// <inheritdoc />
	protected override void OnReseted()
	{
		base.OnReseted();

		_benchmark = null!;
		_earningsYield = null!;
		_bondYield = null!;
		_gapAverage = null!;
		_gapDeviation = null!;
		_latestPrimaryGap = 0m;
		_latestBenchmarkGap = 0m;
		_previousZScore = null;
		_primaryUpdated = false;
		_benchmarkUpdated = false;
		_cooldownRemaining = 0;
	}

	/// <inheritdoc />
	protected override void OnStarted2(DateTime time)
	{
		base.OnStarted2(time);

		if (Security == null)
			throw new InvalidOperationException("Primary security is not specified.");

		if (Security2Id.IsEmpty())
			throw new InvalidOperationException("Benchmark security identifier is not specified.");

		_benchmark = this.LookupById(Security2Id) ?? new Security { Id = Security2Id };
		_earningsYield = new ExponentialMovingAverage { Length = YieldLength };
		_bondYield = new ExponentialMovingAverage { Length = YieldLength };
		_gapAverage = new SimpleMovingAverage { Length = LookbackPeriod };
		_gapDeviation = new StandardDeviation { Length = LookbackPeriod };

		var primarySubscription = SubscribeCandles(CandleType, security: Security);
		var benchmarkSubscription = SubscribeCandles(CandleType, security: _benchmark);

		primarySubscription
			.Bind(ProcessPrimaryCandle)
			.Start();

		benchmarkSubscription
			.Bind(ProcessBenchmarkCandle)
			.Start();

		var area = CreateChartArea();
		if (area != null)
		{
			DrawCandles(area, primarySubscription);
			DrawCandles(area, benchmarkSubscription);
			DrawOwnTrades(area);
		}

		StartProtection(
			new Unit(2, UnitTypes.Percent),
			new Unit(StopLoss, UnitTypes.Percent));
	}

	private void ProcessPrimaryCandle(ICandleMessage candle)
	{
		if (candle.State != CandleStates.Finished)
			return;

		_latestPrimaryGap = UpdateYieldGap(_earningsYield, candle);
		_primaryUpdated = true;
		TryProcessGap(candle.OpenTime);
	}

	private void ProcessBenchmarkCandle(ICandleMessage candle)
	{
		if (candle.State != CandleStates.Finished)
			return;

		_latestBenchmarkGap = UpdateYieldGap(_bondYield, candle);
		_benchmarkUpdated = true;
		TryProcessGap(candle.OpenTime);
	}

	private decimal UpdateYieldGap(ExponentialMovingAverage average, ICandleMessage candle)
	{
		var yieldProxy = CalculateYieldProxy(candle);
		return average.Process(yieldProxy, candle.OpenTime, true).ToDecimal();
	}

	private decimal CalculateYieldProxy(ICandleMessage candle)
	{
		var priceBase = Math.Max(candle.ClosePrice, 1m);
		var range = Math.Max(candle.HighPrice - candle.LowPrice, Security?.PriceStep ?? 1m);
		var normalizedRange = range / priceBase;
		var closeLocation = (candle.ClosePrice - candle.LowPrice) / range;

		return (1m / priceBase * 100m) + closeLocation - normalizedRange;
	}

	private void TryProcessGap(DateTime time)
	{
		if (!_primaryUpdated || !_benchmarkUpdated)
			return;

		_primaryUpdated = false;
		_benchmarkUpdated = false;

		var gap = _latestPrimaryGap - _latestBenchmarkGap;
		var mean = _gapAverage.Process(gap, time, true).ToDecimal();
		var deviation = _gapDeviation.Process(gap, time, true).ToDecimal();

		if (!_gapAverage.IsFormed || !_gapDeviation.IsFormed || deviation <= 0m)
			return;

		if (!IsFormedAndOnlineAndAllowTrading())
			return;

		if (_cooldownRemaining > 0)
			_cooldownRemaining--;

		var zScore = (gap - mean) / deviation;
		var bullishEntry = _previousZScore is decimal previousBullish && previousBullish < EntryThreshold && zScore >= EntryThreshold;
		var bearishEntry = _previousZScore is decimal previousBearish && previousBearish > -EntryThreshold && zScore <= -EntryThreshold;

		if (_cooldownRemaining == 0 && Position == 0)
		{
			if (bullishEntry)
			{
				BuyMarket();
				_cooldownRemaining = CooldownBars;
			}
			else if (bearishEntry)
			{
				SellMarket();
				_cooldownRemaining = CooldownBars;
			}
		}
		else if (Position > 0 && zScore <= ExitThreshold)
		{
			SellMarket(Position);
			_cooldownRemaining = CooldownBars;
		}
		else if (Position < 0 && zScore >= -ExitThreshold)
		{
			BuyMarket(Math.Abs(Position));
			_cooldownRemaining = CooldownBars;
		}

		_previousZScore = zScore;
	}
}