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

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