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BTWFMgr Method

BTWFMgr Strategy Development Method

Below we present briefly the key concepts used in the BTWFMgr Strategy Development Method.  In a few basic steps we show you how to quickly develop and test your strategy with BTWFMgr.

Each Trading Strategy has two major elements:

bullet Strategy Entry Logic – when to enter a position (buy/short)
bullet Strategy Exit Logic – when to exit/reverse a position (sell/cover)

Strategy development starts in most cases with defining just the entry condition(s) and then
translating those rules into the ”Strategy Entry Logic“ (i.e. EasyLanguage® from TradeStation®).

BTWFMgr allows you to optimize initially only the entry logic, without any exit logic yet,
so you can identify initially the best entry points which yield the best “Strategy Potential” (see below).

Once the best “Strategy Potential” has been identified you can then move on to the other “wing” of your strategy, which defines the most profitable way to exit the entries: the ”Strategy Exit Logic“.

Only when both “wings” of your strategy – entry AND exit - are independently strong and healthy,
can your strategy “take flight” and can give you consistent profitable results.

BTWFMgr, unlike other backtesting software tools, does not force you to prematurely include the exit logic, but allows you to first test only the entry logic (Potential Mode) and then later the entry AND exit (Equity Mode), so you can optimize each element individually.

BTWFMgr collects its backtesting data in the background while your platform Backtesting Optimization is taking place  (designed to work currently with the TradeStation®) 8.X platform).

When the platform backtest process completes, BTWFMgr is (optionally) automatically activated, and will immediately convert, analyze and save the collected data, and then present to you the results in several interactive graphs, so you can quickly identify the best results and apply various further analyses.

Step1 – Strategy Preparation & TradeStation® Optimization

In the quick strategy preparation – BTWFMgr will add a small section at the end of your strategy code, which will perform the data collection in the background for you. BTWFMgr can do this one-time modification of your strategy automatically, so you do not have to be an EasyLanguage expert!

Step2 – Detecting the optimal Strategy Potential/Parameters

The only reason for your strategy to enter a new position (buy/short) at the various entry points, is, that you expect – on average – that the market will move in the anticipated direction, allowing you to realize a profit. This assumption can now be precisely tested and verified using BTWFMgr’s  powerful and innovative approach – detecting the best Trading Strategy Potential.

Let's look at an example:

In this example the market moves initially in the anticipated direction (green line) and reaches after 60 bars and average gain of $60 (on each trade). Then the market moves – on average - against you.
The “Strategy Potential Graph” shows you clearly:

bullet How much maximum profit you can expect (highest point of green line)
bullet When that maximum profit is reached
bullet How the strategy potential develops over time and if the market turns against you.
bullet A separate Potential for longs and shorts only (optional)
bullet The optimal ranges for each strategy input parameter

BTWFMgr calculates – for each strategy input permutation – the best and worst strategy potential excursion and then presents you a list of the best results.

Step3 – Detecting the optimal Strategy Exit Method

Initially the optimal “Strategy Exit Logic” method is not yet known, only the “Strategy Entry Logic”.
After we have identified the best strategy profit potentials, we can now detect the best exit methods.

BTWFMgr comes with an integrated “Position Exit Manager (PEM)” which can evaluate 100,000 different exit method variations per second.  Once all variations are tested BTWFMgr will then show you a list with the best results. Then you can add the corresponding ”Strategy Exit Logic“ to your strategy.

Step4 – Detecting the optimal Strategy Result

Now with both the exit and entry logic - you are ready to re-run the TradeStation® Optimization with the nBTWFMgrExport strategy input parameter to 2 (Strategy Equity mode).

BTWFMgr will show you the best results in several different lists:

bullet Sorted by Max Equity
bullet Sorted by Drawdown(%)
bullet Sorted by PSSVolatility(%)
bullet Sorted by Probability(%)
bullet Sorted by ProfitFactor
bullet Sorted by Smart Ranking1 – a custom hybrid of above elements
bullet Sorted by Smart Ranking2 – a custom hybrid of above elements
bullet Sorted by Smart Ranking3 – a custom hybrid of above elements

BTWFMgr also shows you the optimal ranges for each strategy input parameter and even individual results for each specific strategy input parameter value! 

Step5 – Walk Forward Analysis/Optimization (WFA)

The final step is to verify also using the powerful Walk Forward Backtesting Method, that your strategy has a realistic profit potential.

In many cases the curve fitted (fantastic) results in step4 are not likely to repeat, which leads usually to costly and discouraging trading results.

The  Walk Forward Backtesting Method can give you a much more realistic preview and test of the true results your strategy can produce.

BTWFMgr allows you to:

bullet Use any filter formula you devise
bullet Use any sort formula you want to test
bullet Sort all walk forward results identifying the best filter and sort method
bullet Use any in-sample and out-of-sample period setup
bullet See the out-of-sample results in one comprehensive equity graph or spreadsheet or even 3D View
bullet Show the last period input parameters – which are then used in the actual live trading

In summary, BTWFMgr has been designed to allow you to "divide and conquer", though a series of logical steps, each of which is as small and fast as possible.  You can follow this methodology exactly from scratch, or take an existing strategy and leap directly to the WFA.  The choice is yours, with BTWFMgr.

To learn more about and purchase a license for the BTWFMgr product, please visit CFT's BTWFMgr product page.