Falcon7 Tutorial
Strategy Testing
Herein comes the most important part of yo=
ur
technical analysis- testing profitability. Strategy Testing is testing how =
much
profit a particular strategy can yield. It uses the following procedure- fi=
rst create
a strategy on the basis of your chosen study and then test it. You can view=
the
results as a profitability graph. You can gauge how effective your strategy=
is
with this feature!
![3Dtime](3D"StrategyTesting_files/image002.gif")
Time Required: 20 min
Strategy Testing ![3D"strat](3D"StrategyTesting_files/image004.gif")
![3D"strat](3D"StrategyTesting_files/image006.gif")
Go to Strategy
-> Strategy Settings as sho=
wn in
figure 1.
Figure 1 =
&nb=
sp;
The follo=
wing
window opens.
![3D"strategy](3D"StrategyTesting_files/image008.gif")
Figure
2
<=
span
style=3D'font-size:12.0pt;line-height:150%;font-family:"Microsoft Sans Seri=
f","sans-serif"'>Strategy
Testing is not the name of a Study or Indicator as such; it is the summatio=
n of
steps. After adding any study and signals, a strategy has to be built. The
targeted profit and desired loss absorption have to be set. Based on these
entries, you get following result-
|
If you had f=
ollowed
this strategy you would have made this much profit on this particular scr=
ip |
Settings![3DSetting-icon](3D"StrategyTesting_files/image010.gif")
Money![3Dmoney](3D"StrategyTesting_files/image012.gif")
Fields
Description ![3D"d3A%20big%20pack%20notepa=](3D"StrategyTesting_files/image014.gif")
·=
; =
This
is the first tab in Strategy Testi=
ng box.
Choose between Fixed Position Size=
and
Fixed Position Risk.
·=
; =
Enter
your Long Position i.e. available capital for long trade- Long Position Size enabled for Fixed Position Size and Long Position Risk enabled for Fi=
xed
Position Risk.
·=
; =
Enter
the Short Position amount i.e.
available capital for short trade- Short
Position Size enabled for Fixed Position Size and Short Position Risk enabled for Fixed Position Risk.
·=
; =
Enter
the Round Trip Transaction Cost % i.e. the percentage of your earnings that wi=
ll
be cut off as transaction costs which includes brokerage and taxes.
·=
; =
Check
whether you want to Add Profit/Los=
s for
Position Size.
Checking
on this option will cause the previous profit/loss to be added for taking
position on current trade
·=
; =
Enter
the Net Loss %. This is the st=
op loss
i.e. the amount loss that you can bear in a trade. This option is useful for
controlling losses crucial in successful trading.
·=
; =
Enabling
Stop After Consecutive Loss op=
tion
stops halts the trading after the specified number of loss-making trades. T=
his
option is also useful for loss control.
·=
; =
Quantity to Nearest <=
/span>will
round off the trade quantity to nearest multiple specified in the field. For
example, if the trade quantity is 27, trade will be executed for 25 and if =
it
is 31, the trade gets executed for 30. You may opt out of this option by
un-checking on it. This option helps in making calculations easier for you.=
·=
; =
Money
To Nearest will round-off the amount in paise into the paise value
specified in the field. For example, if the amount is Rs.3765892.5437 and y=
ou
have specified rounding off paise value as ‘0.50’ then the amou=
nt
will be taken as Rs. 3765892.50. On the same lines, the amount Rs.
3765892.10245 will be taken as Rs. 3765892.00 if you set rounding off as
‘0.00’.
Duratio=
n ![3Dduration](3D"StrategyTesting_files/image016.gif")
·=
; =
Enter
Start Bar
<=
span
style=3D'font-size:12.0pt;line-height:150%;font-family:"Microsoft Sans Seri=
f","sans-serif"'>Entering
this option enables you to choose the number of days for back-testing. If y=
ou
enter (-200), the strategy will be tested for last 200 days
<=
span
style=3D'font-size:12.0pt;line-height:150%;font-family:"Microsoft Sans Seri=
f","sans-serif"'>You
can even enter Start Date inst=
ead of
specifying number of bars.
·=
; =
Enter
End Bar
This
is the current/latest day upto which testing must be done. If you select (0=
),
back-testing will be done till current day. If you enter (-1), testing will=
be
done till the day before.
·=
; =
Enter
Max Holding Bars
This
is the maximum number of days you will hold a trade. If the stock does not =
hit
your profit target or loss limit, you cannot hang in the market forever! Th=
is
option enables you to select the maximum number of days for which you will =
be
in the market; if trade is not executed before this date it will get squared
off on the last bar (if it’s 30, then on 30th bar).
Stops
·=
; =
Select
the Price High Line which will=
be
used for calculating Long Position Trail Stop rate and for target checking.
·=
; =
Select
the Price Low Line which will =
be
used for calculating Short Pos=
ition
Trail Stop rate and for target checking.
·=
; =
Select
whether entry stop and target should be based on Entry Rate or Signal R=
ate i.e.
target and stop rate will be calculated as per signal rate or entry rate.
·=
; =
Execute
Rate within Bar of Day option if checked evaluates price values of current =
day.
Intra-Rules![3Dintra](3D"StrategyTesting_files/image018.gif")
·=
; =
You
can even specify intra-rules as No=
New
Positions Before specified time, No
New Position After specified time and Close
All Positions At specified time.
Da=
ily
Rules ![3Ddaily](3D"StrategyTesting_files/image020.gif")
·=
; =
You
can specify Daily Rules as Close A=
ll
Position On a specified week day or Close
All Position on Expiry Day as a number of days from current day.
· =
=
Click
on OK.
=
·=
; =
You
can Save your settings Load them later.
Pro ![3Dpro](3D"StrategyTesting_files/image022.gif")
=
·
This option sets condition=
for
generating trade on last bar mainly in intra time frame. The two conditions=
are
listed in check boxes.
Check box1: Enter
the percentage completion of bars i.e. position will be taken on last bar o=
nly
if specified percentage of bar is completed provided the signal is true.
Check box2: Enter
the percentage completion of volume of the average of five bars. i.e. posit=
ion
will be taken on last bar only if specified percentage of volume is complet=
ed
as compared to five bars average volume provided the signal is true.
Making a Strategy
Adding
Study
·=
; =
Open
a chart
·=
; =
Add
a study
Adding
Signals
·=
; =
Add
signals to the chart
|
A
strategy cannot be made unless you plot signals |
Adding
Strategy
·=
; =
Right-click
on chart, select Add Study.
·=
; =
In
the drop-down box below Studies tab,
select Strategy Testing.
·=
; =
A
list of strategy formats will be listed in the display pane. You can select=
any
format, even advanced ones. However, in this document we will take the exam=
ple
of Basic Strategy.
|
Strategy
Testing category gives a list of formats for strategy formulation and not
strategies in themselves. You have to create a strategy by yourself using=
any
of these formats |
Setting
Parameters
·=
; =
Automatically
three tabs will appear- Parameters,
Notes, Display and Sub-graph.<=
/b>
Parameters
·=
; =
In
Parameters tab, select the
parameters. In Long Signal sel=
ect
the desired buy signal. Similarly select Short
Signal.
·=
; =
Select
the appropriate Indicator type- Signal Buy or Signal Sell to filter the sig=
nal
easily.
·=
; =
Select
the Price Line- Close line/ Op=
en line/
High line/ Low Line/ Average Line which is used for entry rate calculation.=
·=
; =
Enter
Delay.
If
you get a signal on any day, you would not be able to execute the trade that
day itself; you can do the trade next morning. Thus, you can keep a Delay of
one day to execute your day. The calculations will then be made on this bas=
is.
You may increase the Delay or not maintain it (zero).
·=
; =
Slippage
·=
; =
Stop Type: - <=
/b>Based
on the selection various stops are calculated. The types are:
·=
; =
Rs (rupees)
·=
; =
Pcnt (percentage)
·=
; =
SD Multiples (Standard
Deviation)
·=
; =
ATR Mulitples (Average True
Range)
·=
; =
Entry stop on HL
·=
; =
Volatility Bars:
These are the ones which have to be set while using SD or ATR stop type.
·=
; =
Entry Stop=
Entry Stop is the Maximum =
Loss
you can bear or the point where you want to exit in case market is moving in
opposite direction.
·=
; =
Trail Trigger<=
/b>
This
is the numerical form of Trail Stop. It is the rate of stock, at which you =
want
trail stop to be enabled. Trail trigger is the value obtained when you are =
in
profit.
·=
; =
Trail Stop
This
is the minimum Target Profit w=
hich
when achieved will square off the trade. Suppose you enter a Target Profit =
of
15%. It may be possible that a like-wise trade is not getting hit and market
starts moving in opposite direction. Therefore, you can square off position=
in
profit instead of exiting with Loss.
·=
; =
Profit Target: This
is this Maximum limit at which you can exit your position.
·=
; =
Profit Type:
Cumulative Profit or its percentage/Average Profit or its percentage/ Trade
Profit or its percentage/ Equity.
·=
; =
File Name<=
span
style=3D'font-size:12.0pt;line-height:150%;font-family:"Microsoft Sans Seri=
f","sans-serif"'>:
Enter the file name.
·=
; =
Send Mode<=
span
style=3D'font-size:12.0pt;line-height:150%;font-family:"Microsoft Sans Seri=
f","sans-serif"'>:
There are three modes:
&=
sect; Ignore
– will just show profit graph on chart.
&=
sect; Simulator
– like paper trading, sends trades to our database without sending it
directly to the exchange.
&=
sect; Exchange
- Sends trades directly to the exchange.
·=
; =
You
can give a Code Name for your
settings. You can type any code name or click D button that will give a default name. You can even attach a
password to your code by clicking on the Lock
button.
If you are very sure of
yourself you can save these values as Default
and if doubt your judgment you can Reset
them ;)
·=
; =
Click
on Next.
Notes
·=
; =
You can add notes to this strategy =
in Notes tab.
&=
nbsp; Display
Settings
·=
; =
Select
the Drawing Style.
·=
; =
Select
the Width i.e. thickness of the
indicator.
·=
; =
Select
Colors. You can select from the
drop-down box and if you want more colours click on the tab buttons to get =
Custom Colors.
·=
; =
Click
on OK.
Sub-Graph
·=
; =
You
can select whether your Indicator should be plotted on the Price (bars),
strategy-B (volume graph) or in a separate sub-graph. Tick in the appropria=
te
check-box.
·=
; =
Check
whether it should be Visible or
hidden. It is checked by default.
·=
; =
Check
or uncheck Bring to Front. This
option is useful when you are using Japanese Candlesticks; by default, the
indicators lie behind the candles. In addition, if you are using multiple
indicator sets, you can make a particular set to be visible in front
Apply
·=
; =
Click
Apply button (with green arrow) in the Sub-Graph tab=
.
|
Indicator/study can be applied only when the settings are ma=
de
in the order i.e. Apply button appears at the last settings option
(Sub-Graph) |
Profita=
bility
Graph ![3D"profit](3D"StrategyTesting_files/image024.gif")
Movement: =
The
profitability graph will show movement only from that many bars you have
selected. If you had entered profitability testing from (-200) bars, the gr=
aph
will show movement below (-200) th bar. Prior to this bar the gr=
aph
line will be still.
|
If
you have made any mistakes in settings, the graph will show no movement.
Specifically, if you do not make any selection (None) in Signal Line Long
Signal Line Short |
Colour:
Green part of graph line denot=
es
long trade and Red part denotes short trade. Also, add s=
top
loss graph on price graph.
Lines on price graph<=
/span>
Yellow-
Target line for long trade
Red- Stop-loss
line for long trade
Sky Blue<=
/span>-
Target line for short trade
Green- Stop-loss
line for short trade
Green Dot=
ted
line-
Denotes the start and end point of the long trade
Red Dotted
line-
Denotes the start and end point of the short trade
Numbers
with + sign denote the quantity
taken for long trade and – s=
ign
denotes the quantity taken for short trade.
Colour Change:=
The graph line switches colour when a signal is shown. For example, a switch
from green to red means a sell signal has been given. Click on the point of
colour switch; the grid lines will show you that signal has been plotted on=
the
same point.
Practic=
e ![3Dnotepad-107](3D"StrategyTesting_files/image026.gif")
- Add
a study, signals on an open chart and set a strategy with delay of 1 a=
nd
percentage stop type and other optimum parameters and view the cummula=
tive
profit graph.
- Set
Fixed Position Size to 1 lakh and short position size to 50,000 and
perform strategy testing by selecting optimum parameters.
- Change
the color and display settings via strategy testing form and view the
profitability graph.
- Save
the tested strategy and load it from the local/server file list.
Time
Required:
10 min &=
nbsp;
References ![3Dreferences](3D"StrategyTesting_files/image028.gif")
1. Falcon7
help files in the software