Answers to the most common questions about TRADING RECIPES
Q1: When will the 32-bit version of Trading Recipes be available?
A: It is now available! Please visit our sister site Mechanica
Software for a
full list of products. Trading Recipes owners may purchase Mechanica
Standard (Upgrade Edition) at a substantial discount.
Q2: What is TRADING RECIPES, and why should I use it for my
A: It is a language-driven software tool for developing, testing
and trading rule-based mechanical trading systems, for maximum
profitability, by successfully quantifying and managing risk. It is
the best tool for multi-market system analysis and trading that is
commercially available. It is not specifically geared toward the
professional trader, although quite a few well known traders and
professional money managers use it. It is also a tool for those who
want to become professionals and for those who want to learn how to
use trading to become more self sufficient.
Q3: Why End-of-Day?
A: Trading is about making money. The shorter the time frame, the
more difficult it is to overcome the execution costs.
Q4: What markets can I trade using TRADING RECIPES?
A: TRADING RECIPES can be used for trading Futures, Stocks, Mutual
Funds, Forex, Crosses.
Q5: What formats of price data does TRADING RECIPES use ?
A: The most popular formats are supported. Metastock, CSI,
Technical Tools as well as various ASCII formats
(Date[YYYYMMDD],[MMDDYY],[DDMMYY],[MM/DD/YY],[DD/MM/YY], Open, High,
Low, Close, Volume, Open-Interest", zero-filled fields are OK)
and our own HST format. TRADING RECIPES expects back-adjusted
(continuous) data for historical testing, as provided by several
vendors, like Pinnacle, CSI, Genesis etc.
Q6: Why is it a DOS application?
A:While some criticism of DOS is appropriate, we think the more
logical approach is to ask the question "How do I learn to make
money and control my drawdowns?". When the answer to this
question is "buy software and learn to use it", you need to
then ask "OK, what software?". If the answer to that
question puts you into a program written for DOS, or the Mac's System
X, or Linux, or Solaris, or VMS, or whatever, that's what you need to
do. Remember, the question is not "how do I learn to test
systems while multitasking 14 other projects and be able to look at
really keen graphs".
TRADING RECIPES has been in development for about 12 years. Until some
point in time, there were doubts that (given the state of Windows 3.1
then and the limitations of available third party database tools) a
program like TRADING RECIPES could be ported to Windows and still
provide adequate performance for larger portfolios. The database
libraries under DOS were still lightening fast by comparison.
Q7: Is it Year-2000 compliant ?
A: Yes, all calculations, routines and data are Y2K compliant. In
fact, with this opportunity, we would like to point out that (unlike
some popular trading software tools) TRADING RECIPES uses double
precision floats for all price based calculations. The reason for
using doubles is because your price data may be expressed with 5 or 6
digits to the right of the decimal point. Calculations (indicators)
involving floating point operations on numbers with 5 or more digits
to the right of the decimal can't be accurate because the result of
any such calculations can easily exceed the limitations of the single
Q8: Can I run it under Windows?
A: Most users run it under WindowsXP, Windows95/98, Windows2000 or
Q9: How complex simulations can I test?
A: We have heard from customers running models consisting of 14
trading systems, each system running on 70 markets, over a time period
of 20 years of data per market.
Q10: Having read Ryan Jones, Van Tharp etc, I would like to
research position sizing ideas, like Fixed-Fractional,
Fixed-Ration etc. Can I do that with TRADING RECIPES?
A: Yes, TRADING RECIPES is in fact uniquely positioned to let
you do this kind of testing.
Q11: How does TRADING RECIPES treat drawdown and risk?
A: TRADING RECIPES treats drawdown as maximum dip in equity, not
open equity. Also, having a predefined stop in your system is not
critical to sizing positions as you can define risk any way you
please. We like to define it as what you stand to lose. Many
traders who use TRADING RECIPES, including some well known ones,
define risk as some measure of volatility. It's your call.
Q12: Having implemented position-sizing ideas like
fixed-fractional, what tools does TRADING RECIPES provide to further
A: Traders use TRADING RECIPES to carefully control their risk. One
limitation of fixed fractional methods for bet sizing will be seen
when markets start to move as sectors. What happens is that as your
system adds more and more positions in a (hot) sector, your portfolio
becomes overbalanced with sector risk.
You could conceivably end up with a highly correlated portfolio
consisting of, say, all grain commodities or biotech stocks. If that
sector turns against you drawdowns can be severe. A simple way to
control sector risk is to incorporate an additional bet sizing rule,
using the GROUPRISK directive, to risk no more than some threshold
percentage of your equity in any one sector.
Another problem with the fixed fractional method occurs during times
of great activity in a broad range of markets. In this case,
particularly if your system trades actively in many markets, you end
up with too many 2% risk trades. Your total portfolio risk could
easily be over 100% of your equity.
You can't always depend on the diversification which you forced with
the previous rule to save you. This time the problem is that there is
no cap (control) on overall or total portfolio risk. Solution? Add
another risk control rule. Plan to risk no more than X% of equity on
all open trades.
The values of these percentages are largely personal choice and will
reflect your own tolerance for volatility. "Limitations"
like the ones presented above can be discovered and theories for
overcoming them can be evaluated using the portfolio level simulation
software TRADING RECIPES.
In TRADING RECIPES you have many Money Management functions among
GROUPRISK: Returns the total amount that equity would
be reduced by if all open positions in the same GROUP (stockmarket
sector, commodity group) as the trade being presented were stopped out
TOTALRISK: returns the total dollar amount that equity
would be reduced by if all open positions were stopped out.
|Trading Basic Code
If TOTALRISK > Equity * 0.50 Then
Newcontracts = 0
|discard any trade that would put your possible
total losses (if all currently open positions in that group were
stopped out) at greater than 50% of your equity.
If GROUPRISK > Equity * 0.20 Then
Newcontracts = 0
|discard any trade that would put your possible
losses in a single group (stockmarket sector, commodity
group) at greater than 20% of your equity
IF NEWTRADE = SHORT AND SHORTRISK <
TOTALRISK * .5 THEN NEWCONTRACTS = MEMORY
|take a new short position only if less than half
of the current portfolio risk is currently held in short
Q13: What are the more sophisticated back-testing features, in order
to avoid curve fitting and emulate more accurately how my system would
have performed in real-time even under the most adverse conditions?
A: A backtest is a simulation of how a real-life investor with a
mechanical investment strategy might have responded to data, whether
buying, selling, or forgoing any transaction at all. A backtest
determines which tradeable instruments (stock, commodity, mutual fund
etc) an investor would have bought, sold, or held, given the market
information available at the time of the hypothetical transactions. A
backtest also determines what the percentage return to the investor
would have been, had the investor made these transactions.
TRADING RECIPES provides you with the features and the flexibility to
do this kind of backtest studies.
WORST CASE ANALYSIS
Most trading system results you will see, assume you started trading
from the beginning date of your testing. However, we feel this is a
huge mistake. When you look at an equity curve there are always many
peaks and valleys. Your results may indicate that had you started on a
certain day that you only needed a certain size account. However, what
if you had started a month (or whatever) later, right before a valley
in your equity curve? You might have needed 2 times more starting
capital (or more). This is what we call "WORST CASE
ANALYSIS". It goes from trade to trade progressively using each
trade's execution date as its starting date, rerunning the
Portfolio Report beginning on that date and letting the portfolio
regenerate from every possible perspective, and displaying the
results. In this manner you can see, column-by-column, your system's
most important results generated when each trade is taken as the very
first one. It tells you that if you were unlucky enough to start
trading the system at the WORST possible time, how much equity would
you have needed to trade the system. You get a list of possible
outcomes!This way you can answer questions like "What are the
chances of getting a negative result?" or "What is the
chance of earning profits over $500,000?". The Worst Case
Analysis tells you what to expect, and it pinpoints the greatest
percent drawdown, the minimum percent win/loss ratio, and the maximum
You gain a remarkable amount of confidence in your system if it can
pass this gauntlet. If the system was curve fit, even accidentally, it
will not pass.
Furthermore with TRADING RECIPES you have the flexibility to design
the system's behaviour to match exactly what you try to achieve. For
example, some user has implemented a "maximum slippage"
test, where buy orders always suffer the maximum possible slippage:
all buys occur at the High of the day. Similarly, sell orders
always suffer the maximum slippage: all sells occur at the Low
of the day. It's a test designed to see whether a system is robust
against slippage under the most adverse conditions.
Q14: Other than regular O,H,L,C,V,OI market data, can TRADING RECIPES
reference external data?
A: TRADING RECIPES allows users to access external data. All you
need is a text file formatted: date, numerical data item. In that text
file, you can have any conceivable numerical data. You might create it
in a spreadsheet program and use it in TRADING RECIPES. You can
reference each day's data value either while making entries/exits or
when sizing your positions. Up to 4 data items are available for each
market, each day, or four for the entire portfolio each day. Lots of
possibilities for using fundamentals, rates, indices, COT, etc. here
Q15: Can TRADING RECIPES trade markets which are denominated in different
A: TRADING RECIPES can handle portfolios made up of tradeable
instruments denominated in different currencies (e.g. 10yr Japan Govt
Bond, 10yr Swiss Govt Bond). Portfolio equities (and consequently
position sizes) are consolidated into a common currency (usually USD)
calculated from daily exchange rate data files for each foreign
currency (USD/JPY, USD/CHF etc), while the trades for each instrument
are maintained in their underlying currency (JPY, CHF etc).
All pages copyright © 2001-2012 RW Systems.
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TRADING RECIPES is the only
language driven software that lets you track a portfolio of many
markets (futures, stocks, mutual funds etc) traded with many
systems, in dynamic interaction.
This means you can simultaneously test across multiple markets
while constantly adjusting position size to total equity and
As you will see, analysis at the portfolio level opens
up striking opportunities. In effect, you can choose a rate
of return appropriate to your risk tolerance and
The SIMULTEST mode lets you
simulate trading multiple systems simultaneously. For
instance, you can test trading an S&P system, a bond
system, and a currency system together. Each trade generated
will, of course, be passed through your Money Management
Ruleset. You can get some really extraordinary results from
using this technique!
What if your system started out
with a huge drawdown? The WORST CASE ANALYSIS tells you
what to expect. This feature pinpoints the greatest percent
drawdown, the minimum percent win/loss ratio, and the maximum
required capital. TRADING RECIPES goes from trade to trade
progressively using each trade's execution date as its
STARTDATE, rerunning the Portfolio Report beginning on that
date. You gain a remarkable amount of confidence in your
system if it can pass this gauntlet. If the system was curve
fit, even accidently, it will not pass.
You may test your trading system
with Money Management for one tradable or a multi-market
portfolio. You simply add the money management rules within
the trading system and review the results in the Portfolio
A complete list of performance values is included in the
report. Among them are ROI, number of trades, percentage of
wins, ratio of wins to losses, largest drawdown, longest
drawdown, largest loser, largest profit, etc.
The Yearly Comparison and the Portfolio Summary Reports
provide the information you need for a complete evaluation of
Money management allows you to control risk and size your
positions in a variety of ways:
a) establish a maximum threshold for risk in any single
b) establish a maximum threshold of risk in the entire
portfolio across all open positions
c) establish a maximum threshold of risk for any group of
d) base your position size on market volatility
Money management automatically sizes your positions based on
your rules and portfolio conditions at the time each trade is
entered. This is Dynamic Money Management and there is no
substitute for it.