Trade Strategist is designed to carry out trading simulations. It processes downloaded stock data, acting on signals from a trading strategy to buy or sell stock, as if it were really trading in the stock on the stockmarket. If on a given date, the trading strategy triggers a buy signal, trade strategist performs the calculations to determine how much stock could be bought with the money available, and updates a virtual account, as if the trade were actually made. It then moves onto the next date, and repeats the process. At the end of the time period, it calculates how much the account is worth, and displays the results.
This whole process is known as a simulation. A simulation is always for a single stock and a single strategy, over a given period of time. You can perform multiple simulations at once in Trade Strategist, for many stocks and/or strategies.
Time plays an important role in Trade Strategist, and as a user, it is important that you understand how it is treated. Trade Strategist works with daily data. Before you perform a simulation, you enter the range of dates for which it will be performed. The simulator them moves through this range one day at a time, determining whether a trade should be made each day, and making the trade if necessary.
When defining strategies in Trade Strategist, a relative time scale is used. You can think of this in terms of a time line: The day the simulator is analysing to determine if a trade should be made is taken to be day 0. Price data is only available up to and including day -1. Day 1 is the day after the day being considered for a trade, i.e., it is in the future. The best way to think about it is to pretend you are deciding whether to make a trade after the close of trading on day -1. You have data up to and including day -1, but don't know the prices for the next day, day 0. You have to decide based on the data you already have whether to make a trade or not on day 0. This is exactly what a strategy does: it decides based on data up to day -1 whether to trigger a buy or sell signal on day 0.
By now you probably have a reasonable idea what a strategy is. A strategy is effectively a formula which takes as input, data for a single stock, up to and including day -1, and can generate a buy or sell signal for day 0. It does not indicate how much stock should be bought or sold, but if a signal is generated, it does indicate the type of order that should be made (e.g. market order, limit order, etc.).
A strategy includes zero or more signal rules. A signal rule is an expression which when true, generates a signal. Three types of signals are possible: buy, sell, and hold. A buy indicates an order to buy stock should be made for day 0, though whether or not the trade is actually made will depend on the type of order, and the price data for day 0. For example, if a signal for a limit order to buy is generated, whether the trade is actually made will depend on whether the price on day 0 drops below the limit order price. A sell signal obviously indicates an order to sell stock. A hold indicates that no order should be made on day 0.
Signal rules are evaluated in the order they are entered in the strategy. A trade order is generated for day 0 by the first signal rule encountered that evaluates true for a given date. If no rule evaluates true, a hold signal is generated. Signal rules can be reordered.
Order types in Trade Strategist basically correspond to the types of orders that can be placed on the stock market. The options are market, limit, and stop. Each order type is available for buying and selling stock. For example, if you create a sell signal rule, and set the order type to stop, you are actually creating what is commonly called a 'stop loss' order.
If you are not familiar with these order types, it is recommended that you read more about them in a book about stock trading, as we don't have the space here to describe how the stock market works in any detail.
A market order will always result in a trade in Trade Strategist. The price of a market order depends on the time at which the order is placed. In Trade Strategist you have a choice between having the market order placed at the open of trading, or the close of trading (on day 0, of course). Other times are not allowed, because Trade Strategist does not have access to price data at specific times other than for the open and close of trading.
Stop and limit orders are different, because they are triggered when the price crosses a given value. In real life, these orders are placed at an absolute price. For example, we could make a limit order to buy stock at $3.45. If the stock price dropped below $3.45, our trade would go through. However, in a simulation, it may not make much sense to set an absolute price value for an order, because the price of the order will usually depend on the day it is being made. Trade Strategist allows you to set the price of stop and limit orders in relation to other prices, such as the previous day's close price, or to create custom expressions to calculate a price from the data available. For example, instead of setting a limit order at $3.45, in a strategy we could create an expression that sets the price to 1% less than the previous day's low price.
In order to construct signal rules, you need a mathematical language for defining when a signal should be generated. You need a means of expressing what conditions need to be met for a particular signal to be generated. In Trade Strategist, such mathematical formulae are referred to as expressions. For example, the Trade Strategist expression for the condition "Today's close price is less than yesterday's close price" is
LessThan( Close(0), Close(-1) )After you have created your strategy, you can run some simulations. But you need to stipulate which stocks will be used for the simulations. Trade Strategist allows you to gather stocks into lists, known as stock lists. When you select a stock list a simulation is run separately for each stock in the list, and for each strategy you have selected.
Before a simulation can be performed, details such as the initial investment, the cost of making a trade (i.e. the commission), and the period of trading (i.e. start and finish dates) need to be entered. These are collectively known as trading specifications.
At the conclusion of a simulation(s), Trade Strategist presents the user with a set of trading results. These are in tabular and chart form, and include things like the amount of money at the end of the simulation, the biggest percentage loss during the simulation, and the number of trades made.
If you find a strategy that works well in simulations, you might be tempted to use it to guide your trading on the stock market. Trade Strategist can generate signals for you for a selection of strategies and stocks. The signals are the signals generated by the strategies for each stock for the most recent data available. Be careful: this data may not be completely up-to-date. Always check the dates given in the Signals Window before using the signals to guide real-life trading.
Note that signals are only available after purchasing Trade Strategist Pro.