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Andrew Boada
2015-02-17 08:39:39
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I agree with Dave. The replay tool could be enhanced in ways that made it far more useful to discretionary traders.
Before I get to the enhancements I'd like to see, there seems to be a problem with the way the tool simulates limit orders and entry/exit prices that causes it to document outcomes that are different, sometimes by a wide margin, from what would have actually happened. Currently, the replay tool allows you to place limit orders which will be triggered by intraday prices. The entry and exit prices the tool records are not, however, the limit order price or something near it, but the open or close price on the day the order was carried out. The fact that the replay tool records entry and exit prices this way means that it will provide an inaccurate record of %gains and %losses, sometimes to the point that it will record trades that would have been winners as losers, and vice versa. For example, If I put a limit order to short a stock at $10, and the stock hits $10 that day before closing at $9, my entry price should be somewhere near $10, not $9, which is what the replay tool will document. If I then place a limit order to cover at $8, and the stock trades on the day in question at $8 or below before closing at $11, my exit should be recorded as having been near $8, not $11. My return on that trade should be recorded as having been ~+20%, not the -10% the replay tool will show. This needs to be fixed.
On the enhancements side, as Dave mentioned, it would be nice if the tool featured stop loss orders (which ideally the user could choose to specify either as a nominal price or as some percentage of a price (open, high, low or close) at a given point in time). Since many discretionary traders incorporate stops as an essential part of their strategy, their absence seriously detracts from this tool's ability to simulate trading and its detracts from its usefulness as a means of methodology evaluation.
The ability to scale into trades would also be a welcome enhancement.
Ideally, the replay tool, or some other means of allowing discretionary traders to simulate trading using historical data, would provide for the option of portfolio simulation. What I have in mind would essentially be the simulator/backtester Quantshare currently provides, but modified so that my discretion is substituted for a set of trading rules. On the money management side, the tool would allow users to set up rules that would be as flexible or as rigid as desired.
With these fixes and enhancements, this software would enable discretionary traders to backtest their strategies as just as comprehensively as systems traders.
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