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Below we present briefly the key concepts used in
the BTWFMgr Strategy Development Method.
In a few basic steps we show you how to quickly
develop and test your strategy with BTWFMgr.
Each Trading Strategy
has two major elements:
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Strategy Entry Logic – when to enter a position (buy/short)
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Strategy Exit Logic – when to exit/reverse a position (sell/cover)
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Strategy development starts in most cases with
defining just the entry condition(s) and then
translating those rules into the ”Strategy Entry
Logic“ (i.e. EasyLanguage® from TradeStation®).
BTWFMgr allows you to
optimize initially only the entry logic, without any
exit logic yet,
so you can identify initially the best entry points
which yield the best “Strategy Potential”
(see below).
Once the best “Strategy
Potential” has been identified you can then move
on to the other “wing” of your strategy, which
defines the most profitable way to exit the entries:
the ”Strategy Exit Logic“.
Only when both
“wings” of your strategy – entry AND exit - are
independently strong and healthy,
can your strategy “take flight” and can give you
consistent profitable results.
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BTWFMgr, unlike other backtesting software tools, does not force you
to prematurely include the exit logic, but allows
you to first test only the entry logic (Potential
Mode) and then later
the entry AND exit (Equity Mode), so you can
optimize each element individually.
BTWFMgr collects
its backtesting data in the background while your
platform Backtesting Optimization is taking place (designed to work currently
with the TradeStation®) 8.X platform).
When the platform backtest process completes, BTWFMgr is
(optionally) automatically activated, and will immediately
convert, analyze and save the collected data, and
then present to you the results in several
interactive graphs, so you can quickly identify the
best results and apply various further analyses.
In the quick strategy
preparation – BTWFMgr will add a small section at the end
of your strategy code,
which will perform the data collection in the
background for you. BTWFMgr can do this one-time
modification of your strategy automatically, so you
do not have to be an EasyLanguage expert!
The only reason for
your strategy to enter a new position (buy/short) at
the various entry points, is,
that you expect – on average – that the market will
move in the anticipated direction, allowing you to
realize a profit. This assumption can now be
precisely tested and verified using BTWFMgr’s
powerful and innovative approach – detecting
the best Trading Strategy Potential.
Let's
look at an example:
In this
example the market moves initially in the
anticipated direction (green line) and reaches after
60 bars and average gain of $60 (on each trade).
Then the market moves – on average - against you.
The “Strategy Potential Graph” shows you
clearly:
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How much maximum profit you can expect (highest
point of green line) |
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When that maximum profit is reached |
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How the strategy potential develops over time and
if the market turns against you. |
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A separate Potential for longs and
shorts only (optional) |
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The optimal ranges for each strategy input
parameter |
BTWFMgr
calculates – for each strategy input permutation
– the best and worst strategy potential excursion
and then presents you a list of the best
results.
Initially
the optimal “Strategy Exit Logic” method is
not yet known, only the “Strategy Entry Logic”.
After we have identified the best strategy profit
potentials, we can now detect the best exit methods.
BTWFMgr
comes with an integrated “Position Exit Manager (PEM)”
which can evaluate 100,000 different exit method
variations per second. Once all variations are
tested BTWFMgr will then show you a list with the
best results. Then you can add the corresponding ”Strategy
Exit Logic“ to your strategy.
Now with both the exit and entry logic - you are
ready to re-run the TradeStation® Optimization with the nBTWFMGrExport strategy input parameter to 2
(Strategy Equity mode).
BTWFMgr will show you
the best results in several different lists:
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Sorted by Max Equity |
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Sorted by Drawdown(%) |
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Sorted by PSSVolatility(%) |
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Sorted by Probability(%) |
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Sorted by ProfitFactor |
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Sorted by Smart Ranking1 – a custom hybrid of above elements
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Sorted by Smart Ranking2 – a custom hybrid of above elements
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Sorted by Smart Ranking3 – a custom hybrid of above elements
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BTWFMgr also shows
you the optimal ranges for each strategy input
parameter and even
individual results for each specific strategy input
parameter value!
The
final step is
to verify also using the powerful Walk Forward
Backtesting Method,
that your strategy has a realistic profit potential.
In many cases the curve fitted (fantastic) results
in step4 are not likely to repeat, which leads usually
to costly and discouraging trading results.
The Walk Forward Backtesting Method can
give you a much more realistic preview and test of
the true results your strategy can produce.
BTWFMgr allows you
to:
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Use any filter formula you devise |
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Use any sort formula you want to test |
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Sort all walk forward results identifying the best filter and sort method |
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Use any in-sample and out-of-sample period setup |
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See the out-of-sample results in one comprehensive equity graph or spreadsheet or even 3D View |
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Show the last period input parameters – which are then used in the actual live trading |
In
summary, BTWFMgr has been designed to allow you to
"divide and conquer", though a series of logical
steps, each of which is as small and fast as
possible. You can follow this methodology
exactly from scratch, or take an existing strategy
and leap directly to the WFA. The choice is
yours, with BTWFMgr.
To
learn more about and purchase a license for the
BTWFMgr product, please visit CFT's
BTWFMgr product page.
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