Noel Campbell
Part of the benefit of the Starter Pack Software has been the automation of the ABC trading rules. This has allowed users to work with the ABC rules on their market of choice with ease. However, to pick up a chart of any market after the last data download and randomly search for ABC points is probably not the way to go in the long-term.
When it comes to trading a system in the market you must believe in that system and develop what I call an attitude of ‘Confident Expectation’. If you have tested your approach and can lay your hands on documented proof, you are far more likely to succumb to the different emotions that can affect you while trading - those of Hope, Fear, Greed and Pain.
Now we are not trying to put the wind up anyone here, however, trading for profits in the market will challenge you in ways you may never have considered before – but one should keep their focus on the rewards that successful trading brings. With all this in mind, this article will break down some of the key areas of the Starter Pack Software that will allow you to expedite the testing process and get you up to trading with ‘tested’ confidence.
The first part of this process will look at producing an ABC Listings Report. This report allows you to list the details of points A, B and C for every legitimate ABC trade during a specified period. You can print a hard copy of this report to sit beside you at your desk as you move into the next phase of testing.
ABC Listings Report
Click on the ‘Report’ icon on the main tool bar and select ‘ABC Listings Report’ from the available list. Once you have done this, the following window should appear.
Here you need to enter the symbol code for the market you are interested in and specify the types of trades you wish displayed in terms of long and short positions. Those trading Futures markets will certainly want both long and short trades displayed. However, before clicking on ‘OK’ we need to check the ABC Settings to be used when identifying the trades.
Clicking on ‘ABC Settings’ brings up the following window.
Here you need to specify the ABC trading rules to be applied to your market. As you can see in the screen shot above we are using a 33% entry limit (removing the need for the ‘Expanding Markets’ box) and excluding abnormal ranges that are 2.5 times the size of the average swing for the last 50 swings.
| Note: I am using our latest version of the Software here (not yet publicly available) and you can see the ‘Include Open Outside Limit Trades’. As it is currently, the Software will not recognise an ABC set-up where the day of entry opens outside the 25% or 33% limit being applied – it is a ‘hard and fast’ rule. The next version will allow the user to make the decision on whether or not to include these trades. |
Once you have finished choosing the parameters you wish to use, click on ‘OK’ to produce the report in an instant. You should get a report like this…
You can now print out a paper copy of this report to have beside you, making it nice and handy as you enter the next phase of the process.
The next stage will be to open a chart of the market you are planning to study and that you have completed the ABC Listings Report for. Using the ‘Hilites’ tab from the Task bar you can bring up the ABC points on the chart displayed by selecting ‘ABC Points – Long’ and ‘ABC Points –Short’. In the chart below you can see the SPI – SPI 200 Composite data (this is the one all SPI traders should use as it provides full history to 1983 and is ‘day’ sessions only).
You must access the Properties of both the ABC Long and Short Points to ensure that the Properties being used to display the ABC on the screen are identical to those you used to produce your report. You can adjust the Properties by ‘double’ left clicking the mouse on the ABC Points – Long and Short names in the ‘Series Labels’.
In the two screen shots below you can see how the ‘Settings’ and ‘Filters’ being applied for the Hilites is set exactly the same as that used for the report.
You can now be assured that the view you have of ABC trades on your screen is identical to the list. From here the next phase is to complete saved ‘Trading Plans’ for each set-up. You may not intend to complete the plans for every trade from the beginning of each contract. You are more likely to complete the Trading Plans for the trades of the past one to two years, while entering and saving the details of any ‘real time’ trades that occur.
To access the ‘Trading Plan’ associated with each displayed ABC set-up you must move the cursor over one of the A, B or C points until the ‘hand’ appears, from here you must right click your mouse to bring up the shortcut box. Select ‘Convert to Trading Plan’ from the list of available options to reveal the first step in the ‘Trading Plan Wizard’.
From here we need to retrospectively complete the Entry Plan and Liquidation Plan for this trade. Now honesty is required here to ensure that your end results accurately reflect the most likely outcome of this trade in a real time environment.
Before you can undertake this exercise you must be clear on the ‘Exit’ rules you are planning to use for this exercise. You may choose to use the SPI style stop movements or the Swiss Franc style stop movements. The SPI style states to move stops 5 points behind the 50% Pressure Point once it is crossed and then behind each subsequent 25% milestone as they are achieved. You may decide that you are going to use 10 points behind each milestone now that the market makes larger daily ranges. However you must make this choice in advance so that your saved results are consistent. The Swiss Franc style stops have us moving our stops to ‘Entry + Commission’ once the 50% is reached and then trailing the stop behind the 50% as the 75% is crossed and behind then take profits at the 100% mark.
There is no exact right or wrong way to manage your stops. For one trade the SPI style may prove the optimal and the next trade the Swiss Franc style works best. However we need to find what approach works best in the long run and over the greatest number of trades for that particular market. However a big hint for you all is that during a strong trend the Swiss Franc style is often the way to go and in a more sideways market the SPI style will keep your profits and capital safest.
For those more experienced you may be well aware that you can try your own variations on the theme to maximise results, however remember a highly specialised approach suiting one period of the market, may not be as reliable over a longer period of time – so fine tuning to the ‘nth’ degree over too short a period in the market may prove detrimental to your system in the long run.
Getting back to the Trading Plan Wizard, let’s complete the Entry and Liquidation plans for an entire trade using the Swiss Franc style movements (due to the strength of the weekly trend). You may use a different style according to your weighting of the trend. Here is a basic outline of the rules to be used:
- At 50% - move stops to Entry + Commission
- At 75% – move stops to 10 points behind the 50%
- Take profits at 100%
- No provision for additional contracts.
The chart below shows the ABC points on the chart. The ABC Pressure Points are displayed for easier reference to entry limits and to determine the most likely position of exit according to the trailing stop rules we are applying.
To complete the process of saving the results for this trade, let’s take the detail from above and look at the resultant entries in the Trading Plan Wizard.
Here are the completed ‘Entry Plan’ details, for this trade (you may like to recreate this at home).
The lower part of this window gives you the basic details needed to determine the entry and exit stop positions for the trade – however be careful about gaps on open etc, that may affect the entry price achieved for the trade – remember, we want honesty in our testing!
If the trade was being completed in a ‘real time’ trading environment you can complete the next stage of the Trading Plan Wizard which is the ‘Pre-Trade Diary’ to record your emotions, etc on entering the trade. In a back testing environment we would hope your emotions are under control!
As you can see on the chart shown for this trade I have added the details of where and when we would have seen the progressive stop movements. Using the Swiss Franc approach we have managed to stick with the trade until the 100% target was achieved - certainly a good result for this trade. Here are the complete ‘Liquidation Plan’ details:
You access the ability to enter the entry and exit details for the trade by clicking on the ‘Add’ button in the initial ‘Entry and Liquidation Plan’ details.
From here you can complete the penultimate stage of the Trading Plan Wizard, which is the ‘Post Trade Diary’, however this field is most relevant for entering the reasoning behind exiting the trade for future statistical reference. By this I mean that if all your trades are ‘Entry + Commission’ after 50% is touched then you may need to change your rules to start locking in profits once 50% is achieved!
Move your way through the Wizard to the final ‘Summary’ step and click on ‘Finish’ to complete the process. You have now saved this Trading Plan and its details to your records.
By using the ‘Reports’ functionality once more you can print a complete copy of this trade and its details by using the ‘Completed Trading Plan’ report. The completed plan for this trade looks like this…
When it comes to making some accurate decisions as a result of your testing you must complete a series of these plans. Therefore working with your ABC Listing Report in conjunction with the ABC Hilites on screen you can move through a one or two year period of the market completing the required Trading Plans for each trade. Once this is complete the final step is to produce a ‘Trade Statistics Report’ for the market you have been investigating. This process is relatively straightforward, so here we go.
Click on the ‘Reports’ icon on the Tool bar and select ‘Trade Plan Trade Statistics’ report. The following window will appear…
As you can see I have entered the details for the required report in this window. Here you can specify the date range of plans to be included and the specified symbol for the report (AAI-SpotV in this case, please note this field is currently case sensitive). By default the Software will include both long and short trades and those both active and complete. You can alter these fields by using the drop down arrows.
Once you have completed the required details you can then readily produce the report, which breaks down the vital statistics of your saved results. You can see a completed ‘Trading Plan Statistics’ report below…
This report gives you the vital statistics you need to feel confident of success in the market. If these results are not as expected then you may need to consider looking at another market or perhaps it was the quality of the longer-term trend that made the difference. We can clearly see this when you look at the results during 1999 into 2000 on the SPI. The market was predominately sideways on the weekly chart and the daily chart results reflected this, however during late 2001 into 2002 the ABC methods have been performing very nicely. Kind of reminds me of the saying – make hay while the sun shines.
Now it’s your turn. Get in there with your Software and its wide range of testing and reporting capabilities to put your market to the test. Remember also that the trades and ABC points can also be highlighted on a weekly chart. This would be relevant to a stock trader who perhaps is looking at the weekly chart as their main time frame for trading – these ABC points can also be converted to and saved as Trading Plans for reporting.
Until next time, wishing you successful testing!