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Tom:
Thanks for all the great work. I had never disected the System Tester like you have, and made that terrible assumption that the setup and calculations were logical!
But I am not clear on two points:
First, why can't you just change the % of Equity to less than 100 (say 95)? Unless some stock skyrockets from close to next day open, that should get around the problem when the program uses the next day's open price to buy long. This doesn't overcome the basic logic flaw, but it should be reasonably consistant from analysis to analysis.
Second, you said:
>>First, don't use "Realistic Market Prices".
>>Make sure your "Position Limit" is set to 1.
>>Set Equity Default size to 100%.
>>Under Margin Requirements to
>>Long Initial = 100%---
>From reading some of your information, I assume Long Initial=100% means NO margin? If so, why not set to 150% or 200%? Or would Metastock use the 200% number to buy twice as much stock?
Third, do you think lots of E-mail to Equis would make any difference? I am new to the program, but from reading other notes on these forums, it appears like they move at a snail's pace (for example, I can't understand why Metastock forces me to remember what stock is in what directory, when other programs make this "transparent" to the user).
Thanks again for making us aware of what to do (and not do) in System Tester settings.
Harry
In equismetastock@xxxxxxxxxxxxxxx, "Tom Sprunger" <tlsprunger@xxxx> wrote:
> bigdog, and any one else interested,
>
> I spent a week or three figuring out how the MS v8 System Tester works. I
> had problems getting the results from 8.01 to match 7.2. I had strange
> signals, missing trades, multiple trades off one signal, etc. Had several
> emails, phone conversations, etc with Equis. Bottom line is that they went
> overboard in trying to make it realistic, to the point it is unrealistic
> (my opinion). Especially if you are trying to develop and test systems.
> However, there are two workarounds you can use to get valid results.
>
> So I won't forget what I learned I, wrote it up. Below tells how the tester
> currently works and explains why the results give missing trades, multiple
> trades, doesn't use your full equity, etc. and therefore provides invalid
> results.
>
> Read below how 8.01 works, then look at the two methods to get valid results
> if you are trying to develop and test systems.
>
> Equis has told me they are looking into changing it, but no commit, and no
> timeframe for making the decision.
> If you agree with me, send or call them and tell them to change it. At the
> bottom, I list what I have recommended they do.
>
> ----------------------------------------------------------------------------
>
> The Metastock v8.x system tester works very differently than previous
> versions. On the up side it can test multiple securities simultaneously.
> However, its operation has differences that are very significant to a system
> developer, and in reality are not anywhere near what would happen in the
> real world.
>
> It is important to understand these differences because the v8 tester can
> give very different results from the v7 tester when using the same system on
> the same security with the same time periods. In addition, because of the
> v8 "features" you can get different results comparing the several systems on
> the same security from the v7 tester. This also implies Optimization
> results could be invalid.
>
> Later we will see how to get around these issues and limitations.
>
> Here's the major differences.
>
> The v8 tester has several new options that are key. The key differences
> result from a "Broker" module which places orders.
>
> a. "Position Limit" This is accessible from the "General" screen on each
> individual system test description. You will need to be very careful what
> you put in here as you will see later. In addition, if you are comparing
> different systems, you need to be sure that they all have the same number of
> positions allowed or you may get unfair comparison results.
>
> b. Trading size. In the v7 tester the system traded 100% of your equity on
> each trade. There was no option to do otherwise (except for "points only"
> test). The v8 tester allows you to trade a constant number of shares, total
> transaction cost, or a percentage of equity available. We will concentrate
> on the "% of equity available, as it is most relevant for system development
> and comparison.
>
> c. Trade Price -- the v7 tester allowed you to select the price field
> (O,H,L,C) for entry and exit and the delay for each. In other words you
> could have different delays for entry and exit.
> The v8 tester does not allow different delays for entry and exit. It uses
> the same delay for all entries and exits. The v8 tester also allows
> different price fields for the long and short entries and exits, which the
> v7 did not. But there is more you should know.... read on.
>
> The biggest difference in v8 is the addition of a button for "Realistic
> Market Prices". It is important to understand what happens when you check
> this button.
>
> To explain, let's assume you have "Position Limit" =1, "% of equity
> available"=100 and the "Realistic Market Prices" button checked.
>
> When you get an enter Long signal, the program calculates the number of
> shares that can be purchased using the open price on the signal bar (day0).
> It tries to purchase that number of shares at the open price on the next bar
> (day1). However, if the open price on the next bar (day1) is higher than
> the price from the signal bar (day0), the tester does not place the order
> because you do not have enough money. Now let's say you did not have enough
> money. If your system is gives one day signals like you would get from a
> cross(x,y) signal, then this trade will never be entered.
>
> If your system stays on a buy like you might have with a latch or with a
> c>mov(c,20,e) structure, then the tester will still be on a buy signal on
> day1. It will then recalculate the number of shares that can be purchase at
> the open on day 1 and attempt to buy them on day2. If it can't buy because
> the price is up at the open on day2 then it will not enter. The process
> will continue until either the price drops at the open and you get filled or
> the buy signal goes away. Thus it is again possible that you never enter on
> this trade signal. The other possibility is that you will not get filled at
> 100% of your equity.
>
> Now for a moment assume that you had your "Position Limit" set at 10, and
> your buy signal remains in effect. The tester will continue each bar to try
> to
> fill your orders as above, and will add positions until either your buy
> signal goes away, or your equity is used up, or your positions are equal to
> 10. So if you have a buy signal that lasts for 20 bars, you may get 10
> positions filled where the last one may be filled on the last bar before
> the buy signal goes away.
>
> Note: the reverse happens on enter short signals.
>
> When the system gets an exit signal (either long or short) it exits on the
> open of the next bar if you have "Realistic Market Prices" checked. Note
> that there does not seem to be any issues on the exits. Since it is an
> exit, it just exits regardless of the prices.
>
> If your system is an always in the market system, and you flip from a long
> to a short, it will exit longs on the next bar, and attempt to sell short
> the number of shares it calculates based upon the open price of the signal
> day. If the price on day1 is higher, it does not enter the short sale.
>
> So, it is key to realize that if you use "Realistic Market Prices",
> Your tests are not at all realistic because you may not get filled on the
> day of the signal, or you may get filled at all, or you may get filled
> multiple times. Implications are:
> 1. Can't compare systems on same security.
> 2. buy sell arrows represent entry/exit dates and not signal dates.
> 3. This problem applies to all securities including mutual funds.
> 4. Very difficult to develop systems and see valid signals.
> 5. Can't compare performance on one security to another with same or
> different systems
>
> Next let's review how the "Trade Price" from the "Trade Execution" screen
> works if you do not have the "Realistic Prices" option set.
>
> The system calculates the number of shares to buy based on the price field
> you choose and then tries to buy them on the price field you choose.
>
> If you have "Buy Price" = Open and Delay =1, the system calculates the
> number of shares to buy based upon the Open price on the signal bar and
> attempts to buy at the open of the next bar. If you have "Buy Price" =
> Close and Delay = 1 the system calculates the number of shares based upon
> the close of the signal bar and attempts to buy on the close of the next
> bar. Same for Sell Price, Sell Short Price, etc. So if all you do is
> uncheck the "Realistic Market Prices" button and use "Buy on open with
> delay=1", nothing really changes.
>
> This is not logical at all! If you decided to buy on the open tomorrow
> based on a signal today, only an idiot would calculate the number of shares
> to buy based on today's open! There has been a whole day's worth of price
> action transpired already and the open from yesterday
> is no longer relevant. You would logically use today's close to "Estimate"
> the number of shares that you "Might purchase" the next day.
>
> Because of all this it is difficult to develop and compare systems using the
> v8 tester that produce valid results.
>
> Now, it gets even worse. All this tells me the optimization results are not
> valid in v8. Since
> all this buy, can't buy because price is up, etc etc stuff occurs, I assume
> it occurs on each optimization run. So your optimization results are not
> based on reality. In some trades, you don't get filled because of this. In
> others you get filled late. A $.01 increase on the open would potentially
> cause you not to be filled. So it makes the optimization results
> inconsistent and unreliable. When you optimize you want to find the best
> signals that optimize your performance. The potential non or late fills
> because of a small price change on a given parameter run totally distort
> this.
>
> So what can you do to get around this to develop and compare systems,
> compare multiple systems, etc. ?
>
> Note that the above issues do not seem to effect you if you use a "Points
> Only" test. In this mode apparently the v8 works just like the v7 tester.
> So you can get valid results that way.
>
> But if you wish to see an equity curve, or get a return in % then you have
> the above problems.
>
> There are two ways to get around this and get valid results and signals.
>
> First, don't use "Realistic Market Prices".
> Make sure your "Position Limit" is set to 1.
> Set Equity Default size to 100%.
> Under Margin Requirements to
> Long Initial = 100%
> Long Maintenance = 0%
> Short Initial = 200% (amazingly, 200% means no margin, but that is
> another story)
> Short Maintenance = 101% (this means essentially no maintenance. for
> some dumb reason they won't let you put in 100%, so you will never be able
> to trade your full equity on a short trade, only 99%.)
>
> Now you have two options.
> 1. Set all your enter and exit positions to "Close" with a Delay =0.
> This will enter and exit all of your equity (except for the stupid 1% limit
> on short sales) at the close. All your signals will show up on the charts
> correctly, your % gains will be correct and it will produce results very
> close to the v7 tester. Of course the drawback is that in the real world,
> you probably won't enter and exit on the same bar as the signal. However, if
> you are mainly looking to compare systems or see signal dates, then this
> works.
>
> 2. Set all of your enter and exit conditions to use format of
> Ref(enter,-1).
> Use "Price Field = Open with Delay =0". (or Close with delay of 0, or
> whatever).
> What happens is that the condition that is true on day0 gets evaluated as
> true on day1 (the day after the signal and the right day to enter). The
> number of shares are calculated and purchased at the same price. The arrows
> show up on the chart on the entry/exit day.
>
> This is as realistic as the v7 tester and actually pretty good.
> The downside is you have to rewrite all your systems to use the Ref()
> function in all the enter and exit conditions. Lots of work and pain.
>
> Using either of these methods should make the system tests valid, match 7.2
> results, and make the optimization results valid.
>
> What should be done is that Equis changes the tester. Here is what I have
> recommended they do:
>
> If the "Realistic Market Prices" button is checked the system should adjust
> the number of shares to buy everything allowed by the equity in the account
> at the open the next day.
>
> When the user selected options for Buy,Sell, etc are checked, the system
> should adjust the number of shares to buy the total $ allowed by the equity
> at the price field selected, on the bar selected by the delay field.
>
> Of course the other option is to just put it back to the v7 method.
>
> One other caveat, I have done any testing attempting to use the limit
> orders so I have no idea what happens when you try to do that.
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