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Replaying 2007
Looking back, 2007 was an intriguing market year. The S&P 500 and the Dow set new all-time highs, and we saw some of the largest, most volatile swings in at least five years. With the sub-prime loan debacle, the Iraq conflict and a shift in the Federal Reserve strategy, this is certainly a financial market to reflect on. Let’s consider how we can improve our trading for 2008 by practicing with 2007’s market data. Luckily for us, this can easily be done in eSignal.
Using Bar Replay
It’s important to go back and look through both our winning and losing trades. For example, in the image to the left, the E-mini S&P 500 futures are bouncing off a 50-day Moving Average and breaking through a 10-day MA. Would you have taken a long trade here? With an earlier bounce of that same 50MA, with the DI+ crossing above the DI-, and with the MACD and Signal lines converging, that may be enough for me to pull the buy trigger that day.
One way to simulate the trading decisions we might have made at that time is through the use of eSignal’s bar replay mode. For those who haven’t used this handy tool before, check out the eSignal Central section on bar replay in November’s issue of the Exchange. We could, then, step through this trade advancing the bars, day by day, and play out the decisions along the way. At each critical juncture, we’d ask ourselves these questions at each step:
- What conditions are needed to trigger me into a trade?
- What’s my target price for this trade?
- Where will my stop be set?
- What would my limit order be for entry?
Some of these questions are better answered by using smaller charting intervals for better timing or even by using tick data for simulated bid / ask quotes. That brings us to another aspect of replaying data in eSignal.
Using Tick Replay
Another method for replaying more recent data is to download every trade using the tick downloader, and, then, using the tick replay mode to replay the trades as they happened. If you haven’t used tick replay before, I would encourage you to review an article on tick replay in the December issue.
While the amount of historical tick data is limited to only recent weeks, there are a number of advantages to using this method over the bar replay mode.
- Multiple Charts
When you are in tick replay mode, you can synchronize multiple charts for a more thorough analysis across various time frames. Many traders use different intervals on the same symbol, and it makes sense to try to duplicate this as closely as possible when testing these types of strategies.
- Realistic Time Horizon
In tick replay, the data is played back at a speed relative to how the actual trades occurred. This allows for a more practical approach to testing the psychological impact a flurry of trades may have on our actual trading.
- Tick-Based Intervals
A growing trend in technical analysis is the use of intervals that, instead of being based on time, are based on the number of trades that have occurred. For example, a 233-tick-per-bar interval is possible in eSignal (for instance, 233T). With tick replay, you can simulate the building of these bars with actual tick-by-tick data that occurred in the past.
- Paper Trading
Built into eSignal is a paper trade system that allows you to place simulated trades. While in tick replay mode, you can also place trades based on the data you are playing back. The eSignal Paper Trade system will then provide fills based on the actual trades that occur, allowing you to track performance during your replay trials.
Whether you’re a system day trader, discretionary swing trader or a long-term investor, the eSignal replay features can help you test out your methods and strategies. Upward and onward to a great 2008!
