backtesting relative strength

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seraphim
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backtesting relative strength

Post by seraphim » Fri Jul 07, 2006 12:56 pm

Hi,

I am new to this forum. Great forum here!

I've been doing backtesting mainly in Microsoft Excel, but have been pushing the limits and looking for a real trading/backtesting platform, like Trading Blox.

I've got the demo version and the manual, and am digging through both of those.

One question I have, since I haven't got into the Blox programming side of things yet, is whether you can build a system that compares relative strength of a portfolio of stocks.

For example, in the Turtle rules, if you get multiple simultaneous entry signals, and you can't take them all, then you take the ones with the best relative strength. Can that be programmed into Trading Blox? (Is it already there in the Turtle system in Trading Blox?)

Also, can you get more complicated than that? For example, I built a system in Excel that evaluated relative strength, by comparing a ratio of a stock with all the other stocks in a portfolio, and watching for trending of that ratio, with trends based on 6% reversals. The system compared every stock to every other stock in the portfolio. If a stock turned out to be stronger (i.e., the ratio of ABC to XYZ is in an uptrend), it would score 1 point. So, if there are 12 stocks in the portfolio, the most you can score is 11, meaning you are stronger than every other stock in the portfolio. If you score a 1, it means you are pretty weak, stronger than only one other stock in the portfolio. The system would then stay in positions that scored 10 or higher, and rotate the stocks every week or month or whatever.

The system generates good returns (35-45%) over a 20-year period, but with also big, long-lasting drawdowns. But with Excel, I can't really add any more testing parameters because it's just too unwieldy and starts crashing. I also can't add any more than 12 stocks to the portfolio, which is severely limiting.

I perhaps should clarify that by the term "relative strength" I don't mean RSI, but instead I mean comparing the performance of one stock to another, or to a basket of other stocks.


This is an example of the kind of thing I'd like to test. I like the flexibility of Excel because I can make it do whatever I want, but again I am just pushing the limits, especially when I try to add in position sizing, risk management, and other essential elements.


Thanks very much!

Tim Arnold
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Post by Tim Arnold » Fri Jul 07, 2006 1:25 pm

Hi Seraphim,

Welcome to the forum! I'm sure you will enjoy it.

In Trading Blox we have a sophisticated Portfolio Manager block that allows a system to rank all the instruments in the portfolio every day by any criteria. What this means is you can create your own custom "relative strength" and compare and rank all instruments using this. The system can then enter or exit positions based on this ranking. You can even rank by Group.

Often this is used in conjunction with another signal generating system such as the Turtle system. You can filter or rank trades based on this, or you can exit positions as they fall 'off the list.'

Another approach would be to use this for position sizing, perhaps allowing larger size for stronger markets and small size for weaker markets. The possibilities are endless.

Hope that helps!

Tim

seraphim
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Post by seraphim » Fri Jul 07, 2006 2:25 pm

Tim wrote:In Trading Blox we have a sophisticated Portfolio Manager block that allows a system to rank all the instruments in the portfolio every day by any criteria. What this means is you can create your own custom "relative strength" and compare and rank all instruments using this. The system can then enter or exit positions based on this ranking. You can even rank by Group.
That sounds great!

Is that Portfolio Manager block available only with the "full" version? Or can you play with that with either of the two "not so full" versions?

Thanks again!

Tim Arnold
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Post by Tim Arnold » Fri Jul 07, 2006 5:12 pm

To do custom blox you need the Builder edition. Many people start with the Professional edition since you can drag and drop different entry/exit/portfolio/money/risk blox into a system. It's a great way to get started with this system building backtesting discipline. But to do the custom ranking you are looking for would require the Builder edition.

seraphim
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Post by seraphim » Fri Jul 07, 2006 5:27 pm

Another question about TradingBlox - does it do Monte Carlo simulations? I am playing a bit with the demo version, and it doesn't seem to have that capability. It just runs historical backtests.

Historical backtests are pretty easy to do in Excel -- but in my opinion they are not enough to give an idea of what could happen in the future. Monte Carlo simulation can give you that.

I noticed that c.f. mentioned (on a different board) that TradingBlox *does* do Monte Carlo, but maybe that's not included in the demo version?

Thanks again!

RedRock
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Post by RedRock » Fri Jul 07, 2006 6:56 pm

seraphim wrote:I noticed that c.f. mentioned (on a different board) that TradingBlox *does* do Monte Carlo, but maybe that's not included in the demo version?

Thanks again!
MC is in the current beta version and works quite well.

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Post by Tim Arnold » Fri Jul 07, 2006 7:42 pm

Monte Carlo is built into the 2.1 version, which should be available to the public within the next month. The trial version is the 2.0 version, which does not contain the Monte Carlo feature.

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