// cost-sensitivity-backtest.afl // Part 30 - Unrealistic Fills, Costs and Liquidity // // PURPOSE // A deliberately ordinary long-only breakout system whose only interesting // feature is that every execution assumption is a named parameter. Run it // once with the costs at zero and once with them at a pessimistic setting, // and read the difference. The difference is the part of the result that was // never yours. // // ============================ ASSUMPTIONS ============================= // Universe whatever the Analysis window is applied to, with whatever // survivorship problems that list carries. State it in your // research log; the formula cannot know it. // Periodicity Daily. // Decision bar the bar on which the breakout condition becomes true, // evaluated on that bar's CLOSE. // Fill the NEXT bar's Open, because SetTradeDelays is 1 on all // four signals and BuyPrice/SellPrice are built from Open. // Slippage SlippagePct is added to every entry price and subtracted // from every exit price, in percent. This is a stand-in for // half-spread plus market impact. It is a guess. Make it a // pessimistic guess. // Commission percent of trade value, both legs, via CommissionMode 1. // Liquidity a symbol is only tradable on a signal bar if its 50-bar // average turnover, measured up to and including that bar, // clears MinTurnover, and its close clears MinPrice. // Participation NOT modelled here. Set "Limit trade size as % of entry bar // volume" on the Settings -> Portfolio tab, or use the // companion formula participation-capped-sizing.afl. // Stops max-loss stop with ExitAtStop = 2: the High-Low range is // checked, and the exit happens on the NEXT bar at the // regular trade price. That models "the stop was breached, I // found out, I got out at the next open" - not "I was filled // at exactly my stop price". Confirm the actual exit prices // in the trade list before you trust them. // Interest set the annual interest rate to 0 in Settings unless you // really do intend to credit idle cash. // ====================================================================== // // This formula produces a simulation of a rule over history. It is not a // forecast, and no result it produces is an expectation of future returns. SetOption( "InitialEquity", Param( "Initial equity", 100000, 10000, 1000000, 10000 ) ); BreakoutPeriod = Param( "Breakout lookback (bars)", 50, 10, 250, 5 ); ExitPeriod = Param( "Exit lookback (bars)", 20, 5, 100, 5 ); TrendPeriod = Param( "Trend filter MA (bars)", 200, 20, 300, 10 ); StopLossPct = Param( "Max loss stop (%)", 8, 1, 30, 0.5 ); PosQty = Param( "Max open positions", 10, 1, 50, 1 ); // --- the three assumptions the lesson is about ----------------------- CommissionPct = Param( "Commission per trade (%)", 0.10, 0, 1.00, 0.01 ); SlippagePct = Param( "Slippage per fill (%)", 0.15, 0, 2.00, 0.01 ); MinTurnover = Param( "Min 50-bar turnover", 2000000, 0, 50000000, 250000 ); MinPrice = Param( "Min close price", 5, 0, 100, 1 ); // --------------------------------------------------------------------- // 1. Portfolio and cost settings, set from the formula so that the report // and the formula can never disagree about what was assumed. // --------------------------------------------------------------------- SetOption( "MaxOpenPositions", PosQty ); SetOption( "AllowPositionShrinking", True ); SetOption( "CommissionMode", 1 ); // 1 = percent of trade value SetOption( "CommissionAmount", CommissionPct ); SetOption( "ActivateStopsImmediately", True ); // entries are on the open PositionSize = -100 / PosQty; // equal weight across open slots // --------------------------------------------------------------------- // 2. Execution model. Delays of 1 bar mean the backtester internally shifts // Buy/Sell/Short/Cover by one bar, so a signal decided on today's close is // acted on tomorrow. The price arrays are NOT shifted by the delay setting, // which is why they are written in terms of the fill bar's own Open. // --------------------------------------------------------------------- SetTradeDelays( 1, 1, 1, 1 ); BuyPrice = Open * ( 1 + SlippagePct / 100 ); SellPrice = Open * ( 1 - SlippagePct / 100 ); ShortPrice = Open * ( 1 - SlippagePct / 100 ); CoverPrice = Open * ( 1 + SlippagePct / 100 ); // AmiBroker clamps any assigned trade price into the bar's High-Low range. // A slipped open that lands outside the bar therefore fills at High or Low // rather than at the impossible price - which is the behaviour we want. // --------------------------------------------------------------------- // 3. The rule itself. Every input is known at the close of the decision bar: // the breakout level uses bars strictly BEFORE the current one, so a bar // cannot break out of a range that includes its own high. // --------------------------------------------------------------------- Turnover = MA( Close * Volume, 50 ); Tradable = Turnover >= MinTurnover AND Close >= MinPrice AND Volume > 0; BreakoutLevel = Ref( HHV( High, BreakoutPeriod ), -1 ); ExitLevel = Ref( LLV( Low, ExitPeriod ), -1 ); Trend = Close > MA( Close, TrendPeriod ); Buy = Close > BreakoutLevel AND Trend AND Tradable; Sell = Close < ExitLevel; // Rank competing entries by liquidity, so that when more symbols signal than // there are slots, the more tradable ones are preferred. PositionScore is // ranked on its ABSOLUTE value by default, so keep it strictly positive. PositionScore = Turnover; // --------------------------------------------------------------------- // 4. Risk exit. ExitAtStop = 2 checks the High-Low range but executes on the // NEXT bar at the regular trade price, so a gap through the stop is paid // for at the gapped price rather than at the level you nominated. // --------------------------------------------------------------------- ApplyStop( stopTypeLoss, stopModePercent, StopLossPct, 2 ); // --------------------------------------------------------------------- // 5. Chart view, so the same file can be inspected visually. // --------------------------------------------------------------------- _SECTION_BEGIN( "Cost sensitivity view" ); Plot( Close, "Close", colorDefault, styleCandle ); Plot( BreakoutLevel, "Breakout level", colorGreen, styleLine ); Plot( ExitLevel, "Exit level", colorRed, styleLine ); PlotShapes( Buy * shapeUpArrow, colorGreen, 0, Low ); PlotShapes( Sell * shapeDownArrow, colorRed, 0, High ); _SECTION_END();