TradersStudio has some awesome capabilities to analyze stocks. In fact, while developing the software I wanted to make 100% sure that this analysis was done correctly. Many trading platforms take an overly simplistic view of stock analysis. They simply treat the price of the stock as being, well, the price of the stock. But there are two aspects of a stock’s price that make that a more tricky problem. The first is that many stocks – especially large-cap stocks that many strategies trade – pay dividends. The other problem is that stocks sometimes issue splits. Both of these aspects must be taken into account when developing a quality trading strategy. Thankfully for us traders, TradersStudio has already thought this out.
Quality Data Matters
Using high-quality data is truly the key to developing a successful trading strategy. After all, if the underlying data is incorrect, our entire system could not be useful. TradersStudio has the ability to read in CSI data, which is often considered to be the highest quality data in the business. The reason for this is simple: it includes dividend-adjusted, split-adjusted, and unadjusted data. The software knows how to read in all three formats. A classic example of this problem is Microsoft. At the beginning of 1991, Microsoft’s actual stock price was about $88. However, Microsoft’s stock has been split a substantial number of times. When we take all those splits into account, Microsoft’s price per share was only $1.83. Why is this? Microsoft’s stock has undergone seven splits since that time. This includes five two-for-one splits and two three-for-two splits (there were also splits before 1991 as well). As you can see, this factors in heavily for trading!
As I mentioned before, TradersStudio handles this very well by using the three sets of data. The split-adjusted data and dividend-adjusted data allow TradersStudio to calculate where any entry point for a stock trading strategy would occur including the issues related to price breakouts with dividends. The unadjusted and split-adjusted prices are used to calculate the real entry price for every single trade.
Understanding TradersStudio Stock Analysis
Let’s consider now how this is actually accomplished from within TradersStudio. We will use the CSI data that is shipped with the program and, continuing on with our example above, the analysis will be done using MSFT since this stock has been split more than most have been. The first step in this process is to create a new session and select TradersStudio stock as the Session type.
In this test, we are going to use a TradersStudio Stock Session and the QQQBreakoutLong system. This is an opening range breakout system. After you have filled out the box, click on Next.
The Contract Lot Size has been changed to 1 share in this test to make our explanation easier. We are also using 0.01 per share for commissions and 0.10 percent slippage. This means that for a $30 share of stock, slippage will be 0.03, which is a realistic estimate.
Since this example is simply for illustration and not for actual realistic trading usage, we will select Microsoft from the NAS100SplitOnlyAdjust directory. After selecting the stock, you will be told that the session has been created and asked if you want to run it. At this point, please click on the yes button to continue.
In the mult argument box, enter 0.5 and click on the OK button to run the session. After the session runs you should see the following table:
This summary report provides trading results in dollars. Other trading platforms tend not to handle this type of scenario well and the report that is generated tends not to be exceptionally valuable. With TradersStudio, it has value because the dollar values are correct and closely match the results that would have been realized in real life. Entry and exit prices are real and the number of shares is adjusted when a split occurs during a trade. This gives us more realistic information than other platforms.
A few things on this report are different from a standard report and need some explanation. First, you can see that the total dividend is a negative number – naturally raising eyebrows as to how this could even be the case. The answer is quite simple: if you are short a stock when a dividend is paid, you need to pay it, and the dividend is subtracted from your trade P/L. Total Net Profit, Sum Dividends and Profit without Dividends are shown in this dollar based summary report. The calculation of Yearly Return on Account is not what many stock traders would expect it to be. TradersStudio uses the following formula:
Yearly Return on Account = (Total Net Profit / Max Intraday Drawdown) / (Years Traded)
In our next blog post we’ll take a look at how this compares with buy-and-hold. We will see also how we can make a true comparison.
It is very important to remember that not all trading platforms are created equal. Some of them are faster, some of them focus on graphics, some of them focus on flashy websites. The most important aspect to any platform, however, is realism. Backtesting software is not even worth a penny if it’s not realistic. Over the many years of trading, I have made sure that TradersStudio is as realistic as can possibly be!