WHAT`S NEW IN TRADESIGNAL 7.7.

TABLE OF CONTENTS.

• Improved performance report
  • Currency adjusted display of trade results
  • Deviation of trade results
  • Tools for performance measurement
  • Drawdowns und runups
  • Advanced MAE/MFE analysis
  • Return Retracement Ratio
  • Reward/Risk Ratio
• New and updated indicators Forward curves with currency conversion
• Improved interface Flexible sorting of watch lists, portfolio and scanner rows
• More statistics in Equilla

 

IMPROVED PERFORMANCE REPORT PROVIDES ALL THE INFORMATION ON THE TRADING STRATEGY.

The performance report shows all relevant figures and information of an underlying trading strategy and is thus a central part of the development and optimization of an algorithmic trading approach. To enable Tradesignal users an even more accurate and more extensive analysis, this field has been significantly extended again. Below we present all the new features.

 CURRENCY ADJUSTED DISPLAY OF TRADE RESULTS.

With the new function “Display Currency Trades”, which can be set in the properties section of the performance reporting, all transacted trades are displayed either in the currency of the underlying or in the individually selectable account currency. For example, if you want all the trades in the S&P 500 contract to be presented in Euro, “Money Management” needs to be selected in the case of currency “EUR (Euro)”. After opening the performance report just choose “Account Currency” as trades display currency (see Figure 1).

FIGURE 1: CURRENCY ADJUSTED DISPLAY OF TRADE RESULTS.

With the new option you can display all trades in any currency.

DEVIATION OF TRADE RESULTS PROVIDES NEW INSIGHTS INTO THE TRADING STRATEGY.

A valuable piece of information of the characteristics and quality of a trading strategy is the deviation of trading profits. With the new Version 7.7 Tradesignal provides information to the standard deviation of profit and loss trades on the average trades. The use of data obtained using the standard deviation is used to identify outliers that may distort the value of a backtest significantly. For example, if a trading strategy generated a significant share of overall performance with just one or a few transactions, it may be assumed that this is an extraordinary, non-repeatable event. For this reason Tradesignal provides adjusted key figures for the profit, loss and the profit factor which just omits these outliers when calculating. Trades are classified as outliers, if their gain or loss exceeds the three times the standard deviation of the average value.

ADVANCED TOOLS FOR PERFORMANCE MEASUREMENT.

For all traders and portfolio managers who want to analyze and compare the profitability of their trading strategy not only in absolute terms, but also on a percentage basis two key figures are now available in the performance report:

• Return on initial capital: The percentage yield is thereby calculated based on the level of capital in the field of money management.
• Annual rate of return: This figure shows the annualized return of the underlying trading strategy.
• Return on account: Total net provit divided by account size required

In the example (see Figure 2), the performance report of a strategy is shown, which was traded with a starting capital of 1 million EUR. As you can see, the net profit for the period was 386 078 Euro. Compared with the initial capital, this corresponds to a profit of 38.61 percent. On an annualized basis, this results in an annual rate of return 29.87 percent (see Figure 3).

FIGURE 2: PROFIT FIGURES OF A TRADING STRATEGY.

In this example the most important profit metrics are shown with and without outliers.

FIGURE 3: PERFORMANCE FIGURES IN PERCENTAGE.

The performance reports now provides percentage metrics for returns.

 DETAILED MEASUREMENT OF DRAWDOWNS AND RUNUPS.

The analysis of drawdowns and runups plays an important role within the development process. Tradesignal offers a wide range of different indicators that can be accessed in the performance report. Figure 4 shows an overview of all available metrics.

FIGURE 4: ANALYSIS OF RUNUPS AND DRAWDOWNS.

The drawdown and runup metrics offer great insights into the underlying trading strategy. If you want to evaluate individual trades, the trade list provides important information. Here you will find two new columns that identify the runups and drawdowns as a percentage of capital for each individual trade (see Figure 5).

FIGURE 5: CURRENCY ADJUSTED TRADE LIST.

All transactions in the trade list now can be shown in any currency.

 TWO OPTIONS FOR THE CALCULATION OF DRAWDOWNS.

How the runup and drawdown should be calculated, may now be defined with the “Drawdown Calculation Mode”. The calculation method may be either “Entry to Valley” (Maximum drawdown is calculated from the entry price to the largest loss) or “Peak to Valley” (here the drawdown from the highest profit point to the highest loss is calculated).

FIGURE 6: DRAWDOWN CALUCLATION MODE.

The drawdown can be defined in two ways: entry to valley or peak to valley.

 ADVANCED MAE/MFE ANALYSIS.

A marginal, but very useful extension in this regard can also be found in the MAE/MFE analysis. The Maximum Favourable/Adverse Excursion charts now show a dividing line to help measure the appropriateness of displayed data and so help answering questions like:

• Have the most profitable trades recorded high drawdowns or were they very low? (describes the quality of entries)
• How many trades were closed with only a small profit or even a loss despite a high runup? (exit component should be improved)
• At what drawdown level the majority of trades produced no positive results anymore? (information laying down the Stop-size)

You can specify both an absolute and a percentage visualization of trades in the diagram.

BY THE WAY: Further information on MAE/MFE can be found in our  Tradesignal How To issue 04. The following diagram (see Figure 7) shows an example of the MFE chart of a trading strategy (only winners are shown) on a percentage basis. With this diagram it can be determined quickly that despite an interim high book profit (runups), many trades only locked in only a small part of it as actual profit – a welcome opportunity to improve the exit strategy.

BY THE WAY: The MFE/MAE charts provided in the new version now show actual closed instead of filled exit orders. This also applies to the trade list in the performance report. This change only makes a difference when a filled exit order exits for more than one entry, in such cases the exit must be treated as a multiple trade, in order to correctly calculate the runup and drawdown.

FIGURE 7: MAE/MFE ANALYSIS.

The analysis of the relationship between the highest runup or drawdown and the final P&L of single trades enables traders to improve their trading system.

RETURN RETRACEMENT RATIO VON JACK SCHWAGER.

Also new to the Tradesignal functions is the Return Retracement Ratio published by Jack Schwager in his book “Managed Trading”. This measure compares the average annualized return of a trading strategy with its average maximum retracement. To calculate the latter at the end of each month the capital is compared to the highest and lowest monthly value in the mean time; the higher of both values is taken into account as a retracement in the overall formula. Therefore, the higher the ratio, the better the trading strategy.

REWARD/RISK RATIO.

The Reward/Risk Ratio combines several key figures from the performance report and merges them into a single risk/return ratio that best lends itself to compare different strategies. In contrast to the conventional approach to set against the profit to the corresponding maximum drawdown, in this metric profits are adjusted for outliers and the average drawdown is used for calculation. Moreover, the additional time invested in market serves as additional risk component. Subsequently, the formula:

THEREFORE: The higher the ratio, the better. EXAMPLE: Reward/Risk Ratio = (50.000)/(1.000*50%)=100. According to common interpretations the Reward/Risk Ratio should be higher than 30.

 

NEW AND UPDATED INDICATORS.

Now we come to the new additions and updates to existing indicators

01. AVERAGE VALUE AT TIME INDICATOR (AVAT).

As the name suggests, this indicator shows the average value of a data series, however,not on the basis of previous candles as a simple SMA does. It takes into account the time of day in the calculation of the average. A simple example: Consider a current 5-minute candle at 2pm. If the period is set to 10, the indicator shows the average value of the 2pm candles of the last 10 trading days. If applied on the volume of a market, this indicator can be used to identify normal patterns and abnormalities. The following diagram shows the DAX future as 1-minute chart. In the middle the volume is shown (gray histogram), the blue line visualizes the AVAT indicator based on the last 10 trading days. The lower subchart (orange) shows the volume difference between the two data series. This is made possible through the use of the pre-built indicator “Spread Diff”. The above-average volume near the lows of the day can be seen clearly in this example.

FIGURE 8: APPLICATION OF THE AVAT INDICATOR ON THE VOLUME OF THE DAX FEATURE.

02. BACKCOLOR DAILY INDICATOR (BACKD) FOR DAY TRADERS.

This indicator colors the background of a subchart in two different colours, depending on what day is displayed. This is mostly used in intraday charts to visualize a day change.

FIGURE 9: INDIVIDUAL COLOURING FOR DAYTRADER.

03. UPDATED STRATEGY DRAWDOWN INDICATOR.

The Strategy Drawdown indicator shows loss phases in capital visually. It now includes three new features to make the analysis even more convenient and more accurate:

• ShowDrawdownAsPositiveValues Displays drawdowns as required to invert
• Calculation Displays drawdowns either absolute or proportional to
• Source Allows you to select the drawdown type: a. ParentDrawdown (a drawdown of a strategy based on close prices) b. ParentIntradayDrawdown (drawdown of a strategy on intraday basis) c. GlobalDrawdown (cumulative drawdown of several strategies based on close prices) d. GlobalIntradayDrawdown (cumulative drawdown of several strategies on intraday basis)

04. UPDATED STRATEGY EQUITY COMBINED INDICATOR.

The Strategy Equity Combined Indicator enables the visualization of the capital curve of as a percentage value by setting the mode to either “Percent” or “PercentMoneyMgmt”. The first option uses the capital amount used in the indicator itself, while the latter is based on the chosen „initial capital“ in the „Money Management“ section of the properties. Figure 11  shows the DAX with the equity curve below (on a percentage basis). The Strategy Drawdown indicator has been inserted twice into the chart – both on an absolute and percentage basis.

FIGURE 10: EQUITY CURVE AND DRAWDOWN ANALYSIS.

The equity curve and the drawdowns can be shown in both absolute and percentage terms.

FORWARD CURVES – NOW ALSO WITH CURRENCY CONVERSION.

Tradesignal provides a convenient way to visualize the forward curve of a contract as a projection in the current chart with the Forward Curve indicator. The indicator now offers the option to carry out an individual currency conversion for the underlying instrument. For example, to represent the Light Crude contract and the corresponding forward curve in Euros, the currency of the chart must be set to “Euro” in the properties section. Then we add the Forward Curve indicator (FC). The “UseParentCurrency” option is set by default to Yes in this indicator and ensures in this case that the forward curve in Euro is displayed.