Trading Simulation and Back-Testing – What and Why

Stock trading strategiesInvesting in today’s markets can be a challenging, complex, and even intimidating experience. Not to mention that mistakes or faulty investment strategies can lead to financial loss and a lack of confidence in making future investment decisions. However, today’s technology and software tools help reduce such strategic misses and provide critical decision-making assistance for both experienced and beginning investors. Two such tools are Trading Simulation and Back-testing.

Trading Simulation – What and Why

Trading simulation is basically just what it sounds like. This is a software application that allows a potential investor to ‘pretend’ or simulate stock investments without actually making a real financial commitment. This allows you to test your strategy for investing without risking any capital to see how your logic for investing would work out from a win/lose standpoint.

By trying a mix of strategies through the simulation tools you can determine how well you’re reading market indicators and company information in making your investment choices. Modifying your choices and re-running the analysis allows you to further determine how small changes to your decisions would have impacted your results. It is easy to see how such a tool could be a considerable advantage to potential investors over those who do not have access to such analytical capabilities.

Back-Testing – How Can You Utilize It to Your Advantage?

Investopedia defines back-testing as a process that allows you to test your investing strategy against a past period in time to observe what the performance of your investments would have been over that time span. The benefits of such a tool are significant in that you can determine whether your proposed investment strategy would have resulted in gains or losses, and to what extent. Some of the valuable statistics provided to traders by back-testing software include:

  • Net Profit or LossNet percentage gain or loss.
  • Time frame - Past dates in which testing occurred.
  • Universe- Stocks that were included in the back-test.
  • Volatility measures - Maximum percentage upside and downside.
  • Averages - Percentage average gain and average loss, average bars
  • Exposure - Percentage of capital invested (or exposed to the market).
  • Ratios - Wins-to-losses ratio.
  • Annualized return - Percentage return over a year.
  • Risk-adjusted return - Percentage return as a function of risk.

As an example, you can evaluate the results you would have experienced if you had invested in oil stocks during a period of political unrest in the Middle East. Let the tools tell you if your choices would have realized gains or losses.

How Do You Get These Tools?

One consideration to keep in mind is the investing caveat that past performance is not a guarantee or promise of future results. Nonetheless, such tools bring obvious advantages to those investors who have such a tool available for their analysis of investment choices.

As with any highly-technical tool, you need to understand the criteria entered into the simulation and back-test software to get reliable results that are comprehensive and meaningful to you. Use of these software products requires some understanding of their functionality that can be provided through the software vendor or provider’s support team.

Whether you are investing for the long term or day trading, arming yourself with powerful analytical tools can provide you with a significant advantage over investors who do not have such software available to them or do not understand or make use of its capabilities.

DasTrader is a leading provider of sophisticated investing software including desktop and mobile applications that facilitate efficient reliable trading and analysis for traders of every experience level. We are constantly striving to improve the reliability of our software to the benefit of our clients. Visit our website today for additional information or contact us today to discuss how DasTrader can improve your investing experience.

How to Add New Routes to Your Montage Window

If you see in the Route Status window that a route is available, but it is not in your route drop down menu, you must add it manually.

First, right click on the route drop down menu to open the Route Box Setting window.

Adding New Routes to Montage 1

First, select the exchange you trade on in the Exchange dropdown menu. The exchange code and their corresponding exchanges are list in the info box on the right. Then type in each route you want to use in the white box, below LIMIT, MARKET, STOP. For each route, make sure you add L or M at the end of the route, for Limit and Market. So for example, if you wanted to add EDGX as a route, you would type in EDGXM and EDGXL in this list. Once you add the route to each exchange you trade on, click Apply and then close the window.

 

To make these changes permanent, you must update your trade settings. Click Settings (or Setup) and then Trading Settings. Then make sure the check box for “Don’t automatically load route list” is unchecked. This setting makes it so DAS Trader Pro loads with your route list instead of the route list stored on your firm’s order server.Adding New Routes to Montage 2

 

What to do about Connection Issues?

Sometimes you or your traders may not be able to login because of their connection settings.

Here are common error messages that indicate that there is  a connection error:

“No more Order server to connect”

“Lost Connection to OrderServer”

The first step in fixing these issues is making sure the connection information is correct.

1. Click Setup then Network.

Network Settings

2. Look for the Firm ID field in the top right of the Network Settings window,  and enter your Firm ID (if you do not know your Firm ID, contact your broker).

3. Click Get Ip

4. Click Modify

5. Click Commit

6. Try to login again.

Position Check

Section A: Your Positions

1. What is a position?
• Shares of a stock or option that you have bought or shorted with your account’s funds.

2. What are morning positions and current positions?
• Morning positions are carried over from the previous trading day, current positions are positions you currently hold.
• Current Position = Morning Position + Today’s Buys – Today’s Sells

3. How do I close/cover a position?
• Right click on the position in the Positions window, then select Montage. In the Montage window, once the order information is entered correctly, click Sell to close a long position, or Buy to close a short position.

4. Why do the clearing firm and DAS Trader Pro have different information about my positions?
• The clearing firm may have adjusted or closed a position outside of the DAS Trader system. This may be caused by a trade break or other reasons.
• The End of Day file did not make it to the clearing firm, this can be caused by various issues. It is best to confer with DAS or the clearing firm directly about this.
• The clearing firm may not have sent the Beginning of Day files to DAS which contain the most current positions information.

5. When we use the Position Check feature, should we compare current positions?
• No, you must use morning positions file as your traders may have already traded today.

Section B: How to Use the Position Check Feature in DAS

6. How do you do a Position Check?
• On the menu bar, click Admin then Position Check. Load the position file using the correct “Compare” button. Then using the three sections which are labeled “Position mismatches,” “Positions only found in System (meaning DAS),” and “Positions only found in file,” and using your knowledge as the broker or administrator, you can select positions to insert, delete, or update.

7. Where I get the positions file from ETC?
• You can download it from the ETC ftp site.

8. Where I get file from IBOSS?
• You can ask DAS to pass this file to you.

9. What are the positions that DAS has?
• These are positions that carried over from the previous day. Because a broker, administrator, or the clearing firm may flatten or adjust a position overnight, the positions that the clearing firm has are the correct ones.

10. What are the position mismatches?
• It is when the positions from the two different sources have different numbers for shares or average cost.

Question: Why was my order rejected?

There are several reasons your orders may have been rejected. DAS Trader Pro displays the full rejection message to you in the montage window, in the status bar below the Level 2 information.

In many cases, the trading venue (route) will reject your order, in which case you will need to check with your broker or admin who can contact the route for more information. If you are a broker or admin trying to find out more information, please contact the trading venue, with information regarding the symbol, entry time, and quantity available so the route can look up the rejection method.

If you receive a rejection because of BP, you should check:

1. The margin requirements for that symbol (you can check by clicking Trade then Shortlist. Enter the symbol you are trying to trade in the first column and press enter. It will then tell you the margin rate for long positions and short positions).

2. If you have open orders, they will use your BP. Double check your BP in the account window.

If you receive a rejection message regarding risk controls, please contact your broker or administrator to review the risk controls placed on your account.

Online Traders (admin view)

This window displays a list of traders online, along with their branch, trader type, version number, login time, IP address, and the quote server they are connected to. This list is not dynamic, to obtain a snapshot of who is online at the moment, right click in this window and select Refresh.

Position Check

This program allows you to compare the DAS Trader database for daily starting positions with a clearing firm position file. Type: 1=Cash; 2=Margin; 3=Short.

Click the Compare with Penson button. Locate the clearing firm’s position file. Click Open.

Position mismatches in system and file: List of positions that are mismatched.

Position only found in System: Lists positions found in your DAS database, but not in the clearing firm file.

Delete: Highlight the positions you wish to delete from the DAS database.

Position only found in file: Lists positions found in the clearing firm’s position file, but not in the DAS database.

Insert: Highlight the positions you wish to insert into the DAS database.

Save: Allows you to save the displayed report to Notepad (or your preferred program for .txt files).

AccFilter: List account numbers you wish to exclude from comparison.

Shortlist (Admin view)

Shortlist (admin view)

This window allows you to add a security to the Shortlist, or remove a security from the Hard to Borrow list. Select Shortlist from the Admin menu to open the Security

Control window. Enter the security symbol in the symbol field. Put a check next to

Shortable List0 or ShortableList1. Enter the number of shares. (This is the maximum number of shares that can be sold short on one order). Click Commit.

 CHECKING IF A SECURITY IS SHORTABLE

Enter the security symbol and click Load. This feature only works for NASDAQ National Market and Listed securities. See Note, below.

NOTE: NASDAQ Small Cap and OTCBB securities are automatically not shortable on this system. However, these securities will be displayed as shortable when using the Load feature described above.

ADD MULTIPLE SECURITIES TO SHORTLIST

You can use the Cut & Paste Short List Edit feature (the big white box on the right side of this window) to add multiple items to the shortlist. This is the format you’ll need to use:

SYMBOL,SHORTSIZE

A,1000

B,10000

C,5000

But make sure you change A, B, and C and their size to the right symbol and size. Click Commit to add these to the shortlist. You will have to adjust the Long Leverage and Short Leverage field individually when adding symbols using this method.