Trading Article
Library
Tools for Strategy Building
by Michael R. Bryant
Many traders have adopted systematic trading methods in
recent years. Trading systems help remove the emotion from trading and enable
trading strategies to be automated so that the buy and sell signals can be
executed automatically without manual intervention. This article discusses the
types of software tools that are available to help develop profitable trading
strategies.
Trading platforms. This is the most basic
tool for systematic trading. Trading platforms can be provided by a
brokerage, often as an enticement to use the broker’s services, or by a
third-party. The latter usually connect to a variety of data sources and
brokerages. The key features of trading platforms are order entry and
charting. In recent years, trading platforms have expanded to include
capabilities more aligned with systematic traders, such as scripting
languages and strategy back-testing. Even in the absence of these more
advanced features, the charting capabilities of most trading platforms
can be helpful in developing ideas for trading systems. Some of the more
popular trading platforms for systematic trading include TradeStation,
Ninja Trader, Trade Navigator, eSignal, MultiCharts, AmiBroker, and
MetaTrader (forex).
Scripting languages. Trading systems are essentially software programs
and, as such, are based on some sort of programming or scripting language.
Languages tailored to market trading are typically available in trading
platforms, although they can be part of a separate, more specialized
application. The most popular scripting languages are general purpose trading
system languages that allow editing, code testing, and some historical and
real-time simulation, depending on the tool. Some of the more widely used
scripting languages are EasyLanguage (TradeStation and MultiCharts platforms),
NinjaScript (Ninja Trader), TradeSense (Trade Navigator), EFS (eSignal), AFL (AmiBroker),
and MQL (MetaTrader). The Traders’ Tips section in Stocks & Commodities magazine
contains code samples for many of the more popular scripting languages.
Portfolio analysis and simulation tools. Some platforms include portfolio
analysis and simulation capabilities; however, third-party tools often go beyond
the features available in most platforms. Tools in this category enable advanced
analyses, including position sizing, portfolio optimization, Monte Carlo
analysis, and robustness testing. Software programs of this type include
TradeStation, which recently purchased analysis software from The Grail and from
RINA Systems, ProSizer (Excel spreadsheet-based tool), TradeSim (for MetaStock),
and Market System
Analyzer.
Code generation tools. Until recently, developing a trading system
required writing code. With the advent of code generation tools, the software
can write the code for you. Code generation tools combine strategy elements,
such as common trading indicators and price patterns, in different ways to find
the strategy logic that works best. Some tools output code for third-party
platforms, such as TradeStation, while others use proprietary schemes that only
run on their platforms. Examples of code generation tools include Trading System
Lab, StrataSearch, and
Adaptrade Builder.
The specific applications mentioned above are generally geared towards
individual and so-called semi-professional traders. While many professional
traders also use these tools, software tools specifically designed for
professional and/or academic use in the finance area include MatLab, Mathmatica,
and the S and R statistical analysis languages.
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