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Design and backtest a trading system with two strategies

by QuantShare, 2862 days ago
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If you have two trading strategies and would like to measure the performance and profit of a trading system that combine these two strategies then this money management script can help you achieve this.
Each strategy, whether it is applied to stocks, FOREX, futures or options, is given an initial equity that corresponds to a percent of the total capital.

What you have to do is apply this script to a trading system, define the buy and sell rules and set the percent of equity to allocate to each strategy and then start the backtest.
Besides, this item allows you to enter a number of days as a rebalance period. On the rebalance day, the simulator will recalculate the capital allocation of each strategy and then scale-in and scale-out the portfolio's positions so that the new capital requirement for each strategy is met.

Example:
You would like to test whether the combination of two stock systems using different technical analysis rules is profitable. You design a trading system and add these strategies; each one gets 50% of the total equity.

On May 5, 2009, a rebalance is about to occur; your first strategy had a loss and its equity is equal to 10,000$ while your second strategy had a profit and its equity is equal to 20,000$. After the rebalance, strategy 1 will have an equity of 15,000$ (-5000$ in cash) and strategy2 will also have an equity of 15,000$ (+5000 in cash).

On that rebalance day, the backtester will scale-out (Sell shares of a stock) positions in strategy1 because it has a negative cash balance and scale-in (Buy more shares of a stock) positions in strategy 2 because it has a positive cash balance.

There are two differences between this money management script and the following script: Rebalance & Combine & backtest two trading strategies
- The first is that this item allows you to enter the percent of equity to assign to each strategy, while in the other script each strategy is given 50% of portfolio's equity.
- The second difference is that this item instructs the backtester, on the rebalance day, to perform scale-in and scale-out operations for all the positions in the portfolio. In the other script, the new equity of a strategy is reflected only after some transactions.




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Type: Advanced Money Management

Object ID: 534


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Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.