Tradestation Strategy Building

Revisiting the TradeStation Strategy Builder

By Will Feibel

In our last article we built an automated trading system using entry and exit strategies that come bundled with the TradeStation charting program.  The system we built was very simple and consisted of the following:

-          Go long or short when the price bar closes and remains above or below a simple 9 period moving average for one bar.

-          Exit on a fixed target of $50 or a fixed loss of $20 per share.

We tested the strategy on a daily chart of AAPL and our results at the time were as shown in Figure 1.

Tradestation Strategy Builder

 

 

In this article I want to revisit this strategy and answer two questions:

  1. Has the strategy performance held up, or had it been over optimized and curve fitted?
  2. Can we improve the strategy by adding different entry and/or exit strategies?

To answer the first question we simply reran the strategy.  We kept the same start date (mid March, 2011) and simply ran it through the end of May 2013, effectively adding 2 ½ months of current performance data.  Figure 2 shows the results.

Tradestation Strategy Building

 

The strategy has continued to perform very well.  In the 2 ½ months since our original test, net profit has increase $6,000 and we have improved the overall profit factor, percent profitable and average trade net profit.  It’s also encouraging to see that the average winning trade continues to be more than twice as large as the average losing trade, greatly contributing to the overall profitability.

Having established that we have a solid strategy that has performed well in both a back and forward test we can now see if there are ways to improve the overall performance.  In order to do this I first focused on more of the built in entry strategies that come with TradeStation.  My goal was to find strategies that might get me into a new trend sooner or that might catch early reversals.  I considered these strategies:

-          Key Reversal entry based on a chart pattern that often signals a reversal in trend.

-          Outside Bar entry which is a possible early volatility expansion signal.

-          Parabolic entry based on the parabolic indicator.  The parabolic indicator resembles a parabolic curve that gets close and closer to the market price as a trend continues.

-          Pivot reversal entry which attempts to enter a reversal trade as soon as a swing high or low is formed.

-          MACD entry based on a crossover of the MACD indicator.

To perform the tests I kept the original entry and exit strategy in place and simply added each of the new entry strategies one at a time.  In all cases I used the default strategy settings.  To limit the comparative analysis I focused on just a few key statistics:

-          Total Net Profit

-          Profit Factor

-          Percent Profitable

-          Average Trade Net Profit

-          Maximum Intraday Drawdown

All of these statistics are readily available from the TradeStation Strategy Performance Report.  The table below summarizes the results.

 

Total Net

Profit Factor

% Profitable

Avg. Trade

Max DD

Baseline

$48,372

2.19

45%

$605

$10,118

Key Reversal

$7,796

1.09

47%

$58

$19,687

Outside Bar

$34,816

1.69

47%

$410

$10,415

Parabolic

$50,190

2.33

45%

$612

$9,944

Pivot Reversal

$26,960

1.47

42%

$281

$10,116

MACD

$48,024

2.17

43%

$578

$10,118

It turns out that it was difficult to improve on our original entry strategy, and only the Parabolic entry yielded an improved return, profit factor, average trade net, and reduced drawdown, although these improvements were not major considering the 2+ year time frame of the test.

Next I conducted a similar test using various exit strategies:

-          Parabolic trailing exit based on the parabolic indicator, which tightens the stop as the trade progresses.

-          ATR target and trail exit which sets a target dynamically based on ATR (average true range) and trails the stop after a certain number of bars.

-          ATR trailing exit which trails by a multiple of the ATR.

-          Channel trailing exit which trails based on the lowest (or highest) price over a previous number of bars.

For this test only the original strategy was turned on and then it was combined with each exit strategy, one at a time.  The default settings were used for all strategies.  The results for this test are below:

Total Net Profit Factor % Profitable Avg. Trade Max DD
Baseline

$48,372

2.19

45%

$605

$10,118

Parabolic

$47,002

2.16

45%

$588

$9,732

ATR target & trail

$38,573

2.13

51%

$482

$6,542

ATR trailing

$47,903

2.22

44%

$599

$10,118

Channel Trailing

$46,123

2.40

49%

$577

$7,222

Table 2

The only option that stands out here is the last one, adding the Channel Trailing exit to our base strategy.  Although the total net profit is somewhat decreased we did improve our profit factor but more importantly significantly reduced our maximum drawdown.  A smaller drawdown means less time to recover and smaller account size required to trade this strategy.

Combining the base strategy with both the Parabolic entry and Channel Trailing exit strategies did not improve the overall results compared to base plus Channel Trailing, although it did reduce the drawdown marginally.  I did however run one final optimization on the fixed target and stop values, and found that using the base strategy with the Parabolic entry and Channel Trailing exit strategies, and only changing the fixed target amount from $50 to $60 per share did give us another nice bump in overall results, while still keeping the maximum drawdown at $7,171.  You can see the results below.

tradestation strategy

 

The only optimization performed in this series of tests was the fixed target and stop optimization, all other settings are TradeStation defaults.  You can experiment with all of them and see how far you can improve on these results.  The important lesson is that you don’t need to be a programmer to develop your own unique trading system.  All you need is a platform like TradeStation or NinjaTrader that automates the bulk of the work for you.  That and a willingness to experiment.

–Coach Will mentors and provides automation training at the NetPicks Premier Trader University

Hiring Someone To Code Your NinjaTrader Strategies

Individuals who choose to use the popular NinjaTrader platform are amazed by its power. However, the complexity of the system can be somewhat overwhelming for those who want to create their own NinjaTrader strategies.

For example, the NinjaScript coding system can be incredibly confusing for people who are brand-new to the system and who have no previous programming experience.

This raises the question of whether or not it might make sense to hire somebody else to code your NinjaTrader strategies. Needless to say, there is a lot of confusion about whether or not this makes sense.

Generally speaking, you never want to hire somebody else to create a specific algorithm that you had no part in engineering. In other words, if you engineer the logic behind a particular trading strategy, you can certainly hire somebody to then translate that logic into an algorithm that will be understood by the NinjaTrader platform.

On the other hand, if you’re thinking that you can just go out and hire somebody to create the NinjaScript code needed to apply a particular strategy — and you’ve failed to identify what that strategy will be — you’re asking for trouble. Remember, this is your money that’s being traded!

If you’re brand-new to the world of financial markets and feel as if though you’re perhaps a little bit in over your head, don’t worry. There are a lot of educational materials and related tools that you can use to help you learn more about the process.

What you ultimately need to remember is that NinjaTrader is the equivalent of a high performance car. If you have an idea about how to modify the car to make it perform better, you’re certainly welcome to hire a car mechanic to implement your idea. But if you’re hiring somebody to do work on the car and you’re not really giving them a lot of direction or input, you may not like the results you get.

The Easy Way To Develop Your Own NinjaTrader Indicators

Many of the most successful financial traders in the world today rely upon a robust trading platform known as NinjaTrader. Many of the tools and technology built into this trading platform make it easy for even the most inexperienced individual to begin applying advanced techniques and strategies to their trading.

This is why more advanced users choose to develop their own NinjaTrader indicators. They ultimately believe it gives them an edge over everyone else who is blindly using the platform.

This brings up the question of how someone can develop their own NinjaTrader indicators in the quickest and easiest manner possible. It’s called the building block method.

You first start with a classic indicator that many individuals are already using. Based on your own real-world trading experience, you then modify this indicator so that its parameters are more customized and tailored to your needs.

The reason why this particular system for developing your own NinjaTrader indicators is so effective is because you’re not being required to create an indicator from scratch.

That can not only be a time-consuming process, but it can also be very risky. You ultimately want to rely upon a solid foundation that has proven itself to be effective. By modifying a classic indicator in the manner described above, you’re getting the best of both worlds.

To the extent you happen to be somebody who is brand-new to the world of making money in the financial markets, you definitely owe it to yourself to learn as much as possible about the process. You need to be willing to invest in tools and education before you start risking real money in the financial markets.

You’ll be amazed at just how lucrative it can be to be involved with the financial markets. And when you’re ready, and you choose to use the NinjaTrader platform, you now have a better understanding of how to create your own custom indicators.

Making The Most Money Possible By Exploiting New NinjaTrader Strategies

Do you sometimes feel as if though you’re a step behind everyone else in the market? The simple fact of the matter is that the most successful financial market traders in the world today invest a lot of time and money on tools and education.

When you really stop and think about it, this makes a lot of sense. Things are constantly evolving and changing. For example, some people wonder whether or not it makes sense to exploit new NinjaTrader strategies as they become known, or if it makes more sense to stick with classic strategies that have proven themselves to be effective in the past.

As you may already know, NinjaTrader is a world-class trading platform used by countless numbers of the most sophisticated financial traders in the market today. The issue of whether or not it makes sense to use NinjaTrader strategies that are brand new is somewhat controversial. In a lot of cases, many of these strategies are so new that there really hasn’t been an ample opportunity to put them to the test in real world trading.

Remember, anybody can sit around and devise new strategies and then test them based on how the market has performed in the past. In situations like that, it’s easy to create a particular strategy that would have (in the past) yielded a 700% return. The real challenge is when it comes time to risking real money in an active market. It’s a very different feeling to try a strategy that has so far only really been tested within a computer trading model.

What you ultimately need to realize is that people who make the most money in the financial markets are open minded to trying new strategies to see if they will work. This is what ultimately gives them an edge over their competitors who oftentimes prefer to stick with classic strategies that have certainly proven themselves to work but are being used by so many people that they’ve become somewhat over-saturated.

Are Custom NinjaTrader Indicators Useful?

In today’s competitive trading environment, it’s more important than ever before to have an edge. That’s why so many traders are using the NinjaTrader platform. It’s a robust system for evaluating the market and for identifying profit loopholes that can quickly and easily be exploited.

That being said, the challenge some traders are facing is with the question of whether or not it makes sense to use customized NinjaTrader indicators. This typically requires that an individual have a very nuanced understanding of the system as well as of the market. It’s also useful if the trader has some degree of experience using some of the standard indicators that come with the NinjaTrader trading platform.

The overwhelming majority of individuals who have engineered their own set of NinjaTrader indicators are doing so because they want to provide themselves with a unique market edge. Therefore, the use of these customized indicators can truly be useful if someone is interested in exploiting market conditions that may not otherwise be picked up by other NinjaTrader indicators.

What you ultimately need to determine is whether or not you are truly serious about making the most amount of money possible in the financial markets. If you are, then creating your own set of customized indicators may very well be a path worth pursuing. The reason why is because it will allow you to exploit market nuances in a manner that is completely unique and different from what a lot of your competitors are doing.

Needless to say, using the NinjaTrader platform isn’t cheap — but you need to focus on the amount of money that you have the potential to make by using a high caliber trading platform with a proven track record of generating profitable results for others.

To the extent you happen to be brand new to the world of trading, it might make sense to first start by investing some time and money in your education. Once you have some experience and a baseline level of knowledge about how the markets operate, you can certainly consider creating your own customized set of indicators which may ultimately prove to be very useful.

Using the Tradestation Strategy Builder

Using the TradeStation Strategy Builder

You don’t have to be a programmer to develop your own automated trading strategy.  If you use TradeStation you can create a custom strategy using a slew of built in strategies that you can mix and match.  In this article we’ll show you how to put together a simple system using these tools.

Tradestation Strategy Builder

Figure 1

Figure 1 shows how to add the strategy elements to a chart.  In this case we’re using a daily chart of Apple Computer stock (AAPL) for our testing.  To begin the process insert a strategy as highlighted in A above.  This opens the Insert Strategies window, shown in B.  Every line in this window represents a different strategy element, either an entry strategy or an exit strategy, for either longs or shorts.  The columns indicate the type of strategy element: buy for a long entry, sell for a long exit, short for a short entry, and cover for a short exit.  You can sort on these columns to help in your search.  We’ll start out by adding the _Stops & Targets strategy to our chart.  This strategy issues sell and cover orders to exit trades.  Highlight C shows the inputs for this strategy.  If the first input is set to 1 then all the subsequent inputs apply to a single share or contract, and in the defaults it tells TradeStation to exit trades when either $5 per share in profit or $1 per share in loss is reached.  Note that this strategy element is very flexible as it also allows you to use breakeven and simple trailing stops.

Having selected the basic exit strategy, we next focus on the entries.  There are many options here also, some are breakout entries, others are fading entries (mostly oscillator based), yet others are based on volume or volatility.  You can learn more about each by pressing the Definition button in the Insert Strategies window, which will open the TradeStation Help description of how the strategy works and what all the inputs represent.

Tradestation Strategy

Figure 2

In Figure 2 we select the Moving Cross entry strategies.  Note that we select two separate strategies here, one for entering longs (buy) and one for entering shorts (sell).  You don’t have to use the same type of strategy for both long and short, you could combine the Moving Cross LE (long entry) with a Moving 2Line Cross SE (short entry) for example.  But we’ll keep it simple by choosing the same entry method for both longs and shorts.  Highlighted in C you see the Format Strategies window which now contains our single strategy to exit long and short trades and one strategy each for entering longs and shorts.

And that’s all there is to it.  You can now view the Strategy Performance Report from the View menu and see how your strategy performs.  Odds are that it won’t be perfect because not every strategy will work the same way on every instrument and time frame.  Some tweaking will be required.  Fortunately TradeStation gives us powerful tools to do this.  It allows us to essentially optimize every input in every strategy element.

tradestation strategies

Figure 3

Look at Figure 3 to see how easy it is to optimize a strategy.  We open up the Format Strategies window and select the _Stops & Targets strategy.  Press Format to get to the strategy inputs.  In this example we highlight the input ProfitTargetAmt and press Optimize.  This opens the Optimize window for that input.  Simply give it a Start and Stop value and an increment, and TradeStation will calculate the system’s profitability for each step.  In this case we’ll test profit target amounts of $10, $20, $30, etc. all the way to $200.  You can repeat this process for every input in every strategy, but just be careful not to over optimize.  It’s best to stick with default values as much as possible, although I do recommend optimizing the profit and stop loss amount for each symbol and time frame tested as their normal movement range can vary greatly.

strategy builder

Figure 4

Once TradeStation completes its optimization you can look at the results in the Optimization Report, which you access from the View menu.  In our example you can see that all profit amounts tested yielded positive overall results, which indicates that the system is fairly robust on the daily AAPL chart.  You should always be careful if the best result is a big green number surrounded by much smaller green values or even red results.  This is a clear sign of curve fitting or over optimization.  Fortunately that’s not the case here.

In our example we only optimized the profit amount and the stop loss amount.  We did not optimize any of the entry strategies’ inputs.  The results turned out to be quite strong, as shown in Figure 5.

Tradestation system strategy

Figure 5

The Strategy Performance Report is also accessed through the View menu, and in Figure 5 we show two pages from the report, the Performance Summary and the Equity Curve Line.  The figures in the report are based on trading 100 shares of AAPL over a two year period.  The overall profit is over $42,000, not counting slippage and commissions, and although the win percentage is only 44%, the size of the winners is more than twice the size of the losers, giving us an average net profit per trade of almost $600 per 100 shares traded, more than enough to cover normal commissions and slippage.  If you apply the same system to a different instrument the results can be very different however, so be sure to at least rerun the optimization for the profit and stop loss amounts.

This approach obviously is not perfect.  While it works well on daily charts its application to intraday charts is hampered by the fact that we cannot set a start and stop time for day trading, so trades are taken around the clock.  Nor does this approach allow for any power of quitting rules, such as stopping trading if the first trade of the day is a winner or if we’ve booked a total of $100 or more for the session.  It’s also impossible to apply filters, for example only entering long trades if the 50 period EMA is above the 200 period EMA.  The approach does however give us an excellent starting point for testing different strategies that we can later enhance through additional programming.

Author:  Will Feibel writes for NetPicks Trading Tips and the NetPicks Informer.

Learn Futures Trading

I get asked quite frequently what’s the best place to Learn Futures Trading or how about even Learning Forex Trading?

A suggestion I have is to consider the folks at Premier Trader University.  I’ve known them for a while and they’ve put together a complete curriculum that basically takes you from the trading pre-requisites, to becoming an Undergraduate and finally you pick your Major whether that’s Stock & Options, Futures or Forex.  Or you can of course double Major or even triple Major rather than specializing.

I know they have a nice free educational trading education webinar series.  You can check out the Trading Webinars at this link.

Or, they also hold weekly Trading Google Hangouts – you can come every Friday and hear the folks at the Premier Trader University talk about trading and they give you quite a bit of free trading advice as well.  Certainly worth taking advantage if nothing else the free educational trading webinars, and the free Google Hangout.

This is particularly of interest if you see indicators like we have here at ProIndicators but really don’t know how to go from quality indicators to a true fully developed trading system.  Check out the resources above.

Learn Forex Trading

Forex Indicators and the Rise and Fall of Forex Robots

If you haven’t gotten the memo yet Forex Robots are worthless.  If you’ve dabbled with Forex Robots by now you probably have lost your money several to countless times and wonder why everytime you use that latest and greatest forex robot you experience the first even 75% drawdown this alleged holy grail system has seen.

Forex indicator based trading is by far and away superior including MT4 Indicators.  You can’t assume that making a living part time or full time in forex trading is going to be as easy as installing a $50 piece of software right?

Why we are instead such big fans of forex indicator based trading is the simple fact that you are doing several things by using forex indicators.  You are empowering yourself to take control of your trading.  Sure, I realize it’s not as luxurious as turning on a forex robot and letting it trade its way to riches for you.  But, since you now know that’s a pointless joke (you do right?) you can now get serious about your trading.

ProIndicators.com focuses primarily on indicator based trading.  This is where your forex indicators (or futures, or stocks) can provide perhaps 90% of the guidance mechanically and then you use your experience and what you’ve learned about trading to supply the other 10% or the real art and instinct that all successful traders possess.

Check out our main page, whether you have Tradestation, MetaTrader or NinjaTrader we have forex indicators available now to start helping guide your trading decisions.  And, give you back the control as you witness the fall of the forex robots all around you.

Forex Robots Flored

Tradestation System Trading

Tradestation System trading has proven to be quite popular.  What’s the appeal?

With a tradestation system strategy add-on you can do a variety of things from backtesting, optimizing your inputs to actually turning on automatic execution.  ProIndicators.com has developed several of our best indicator systems into Tradestation Systems.

The way you can tell which of our Indicators is available as a Tradestation Strategy is look for this image:

Tradestation System Addon Strategy

And your chart will look like this once installed:

Tradestation System Add-on

Once you add that you’ll be able to get a system that will be able to back-test prior results weeks or even months.  Plus you can optimize those inputs.  Be careful of over-opimizing, never a good idea but there’s no question – market don’t all behave the same.  Some fine tuning if you’re going to trade the EURUSD, or Crude Oil Futures, or the S&P e-Mini should be done — behavior isn’t identical but price action is still price action.

And, you can even have the strategy add-ons help you manage a trade, move stops or even take an entry.  Make sure you are careful about whether you’re willing to accept market orders, possible slippage, the possibilities of not getting executed, etc…

ProIndicators gives you a great way to both combine powerful and easy to use indicators and a Tradestation System add-on opportunity as well.

 

Metatrader Indicator Identifies Key Support and Resistance for Breakout Trading

One of my favorite ways to trade using Metatrader Indicators is to identify what I call Key level support and resistance.  Trading those support or resistance levels on a breakout is one of the lowest risk ways to trade.  You can simply place your protective stop on the other side of the breakout, and then many times if you pick you trade right you can trail it for a significant gain.

Low risk, high reward – always smart when trading with Metatrader 4 Indicators right?

Our ”MetaTrader Direction and Levels” indicator does just this.  See the screenshot below.

The “MetaTrader Direction and Levels” indicator is extremely dynamic.  It not only can reveal current direction and support/resistance levels for any instrument being traded, on any type of chart but can be used in several ways…

Trend indication is shown by the blue/red trend line.  Support and Resistance levels can be identified by the blue/red dots.

What I like to do?  I don’t immediately buy or sell on the first breach of the support or resistance identified.  I suggest you place an Average True Range Indicator on the chart.  Then, I would suggest you take somewhere between 1/4 to 1/2 of that Average True Range and trade that many pips above or below the support or resistance.  That will give you a nice momentum based confirmation and a safer entry – and avoid false breakouts.

Metatrader Indicator Breakouts

Metatrader Indicator Breakouts