Dollar Bar / Volume Bar thresholds

Installations & Python Packages
1

Course Name: Data & Feature Engineering for Trading, Section No: 13, Unit No: 23, Unit type: Notebook



Hello,



Hope you are doing well.



Is there any formal method to determine the threshold value for the Dollar and Volume Bar? 

As transaction is not static, should this threshold a rolling one? 



Thank you.



Eric

2

Hi Eric,



We are doing great! Hope you are keeping safe as well!



The dollar-volume threshold is determined for a particular asset after analysing the historical data to see the average value. This threshold can also be made into a rolling one with the threshold changing by some function of the latest window of lookback data.



There is no hard and fast logic to arrive at this value as it varies from asset to asset and even across different time in the same asset.



Hope this helps!



Thanks,

Gaurav

3

Thanks for your reply,



It is still make sense to use dollar bar for a swing or position trade? or the advantage is not statistically significant?



Eric

4

Hi Eric,



The use of dollar bars would result in less heteroskedastic data as it is empirically believed the return distribution will be closer to IID when compared to time bars. Dollar bars can be used to implement the swing trading strategy signals, but it would be important to note that the threshold value for the sampling of dollar bars is appropriately set. If it is too less, it might indicate false entry signals, and if it is too large, then entry signals will be delayed.



Hope this helps!



Thanks,

Gaurav