Trading Plan Overview

Trading Plan Overview

A Trading Plan is an extension of a Session because it applies the ideas behind the Session concept to multiple markets and applies money management and filtering strategies to the process.

A TradersStudio^® Professional Trading Plan is what is called a ‘Meta-Control’ of one or more sessions. A Trading Plan runs one or more Sessions one bar at a time while accessing all the information from each session on a symbol-by-symbol basis. The Trading Plan can communicate with the Session so that Property changes at the Session level can be made while the Trading Plan is running. A simple example of this would be altering the number of units to buy or sell at the Trade Plan level based on the money management strategy. You can also filter trades by setting the number of units to ‘0,’ which allows trading only the best performing markets from a given basket.

TradersStudio Professional ships with a collection of the most popular Trading Plan concepts already coded for use in backtesting analysis or as a learning tool. However, TradersStudio Professional also gives you the ability to write Trading Plans with its powerful language for Trading Plan scripts.

TradersStudio Professional comes with many built it Trade Plan scripts. One of them is a percent margin plan. Percent Margined is a simplified version of an ‘Optimal f’ or ‘Fixed-Fraction type of money management strategy’.

Using this strategy, current capital is divided by the number of different markets that we are trading. For example, if there is $100,000 in the trading account and we are trading across a basket of 10 markets. In this scenario, there would be $10,000 available for margin for each market. Using the Percent Margined strategy takes a percentage of that $10,000 amount.

In this example, if 30% of margin were chosen as the level of Percent commitment, there would have been $3,000 available to trade each of the 10 markets in the basket. If margin on a particular commodity were $2,500 per contract, we would trade one contract. If margin for a market were $500 per contract, we could trade 6 contracts. If it were $20,000 per contract, we would not have enough money to trade that market until profits had accrued in the account.

This methodology is a fixed fraction strategy because margins are set once per run. If margin on a market is $2,000 and we want to be margined 20% trading 10 markets, we would trade one contract for every $100,000. Here is a quick explanation of the math. At 20% margin, we need $10,000 per market to trade one contract. If we fund an account with $100,000 to trade 10 markets, the account divided equally would represent $10,000 per market.

Margins are established by the exchanges and are based on relative volatility making this a useful strategy.

In order to use a pre-written trade plan you just need to fill in the dialog box below and click on the Next button to continue.

When you run a trade plan just like systems they can have parameters here we are setting percent margin to 25 and Ceiling for the most number of contracts to 100.  We can also change run dates.

After the Trading Plan has run, we can see the results of using percent margin money management with all the default reports.

Trading Plans have the standard reports that Sessions have.  There are tabs at the bottom of the screen for the Summary Report, Trade-by-Trade Report, Active Orders, Monthly Breakdown, Yearly Breakdown and an Equity Report.

The Equity Report is very powerful because it provides the return over the period and annual return.  A problem with the result is that Percent Return does not include any reinvestment of profits so these numbers are greatly over-inflated.  The Compound Annual Growth rate is the returns that compound interest rates over this period would produce.  From this report, this simple system produces 19.89% returns.  We can also see that our MaxDrawdown is 63.65%. 

The MAR Ratio is Compound Annual Growth Rate divided by Percent Max Drawdown.  In this system, the MAR Ratio was .3125.  The Sharpe ratio is .6569.  The system also had 1379 days between new equity picks with an average time of about 57 days.

Trade Plans also include three charts – Equity Curve, Log Equity Curve and Underwater Equity Curve.  An example of the Underwater Equity Curve is shown here.

The large spike drawdown that occurred in 1994 was caused by the equity curve giveback on a large coffee trade.

What really makes TradersStudio Professional Shine is that with a few mouse clicks you can add multiple sessions to this trade plan and apply the money management run to 2 or more sessions.  For example, we added a simple opening range breakout system containing the S&P 500 Index, the NASDAQ Index and Natural Gas.

TradersStudio Professional trade plans now divides our capital by 10 markets rather than the 7 markets used previously when applying the Percent Margined algorithm. 

When the Trade Plan has finished running, starting with the same amount of money and combining two sessions produced $158.25 million in profits over the 26 year testing period!  Maximum drawdown was a little over $15 million.  Two units of natural gas are being traded in this simulation but because of the way the Percent Margined algorithm works, they are being traded using different sub-pools of money.

Examining the Equity Report shows the power of combining multiple sessions.

The Compound Annual Growth Rate is over 22.3 percent with a Maximum Drawdown of 17.15 percent.  The MAR Ratio is 1.30.  By inspecting and comparing the two Underwater Equity Curves, we can also see that the performance of Natural Gas in 1994 solved some of the issues caused by the Coffee trade. 

For Sessions, the Correlation Matrix is provided on a market-by-market basis.  At the Trade Plan level, it is provided session-by-session.

Because there is very little correlation between these two sessions, the results of the Trade Plan are enhanced.