by on March 6, 2020 in Channel Algorithms, Free Trading System, Python, Sector Analysis, TradingSimula-18, Trend Following System

Trading 3 Least Risky Markets on a Sector Basis

Using TradingSimula-18 to Poll and Sort Daily Market Risk and Limit Market/Sector Exposure

In this post I hope to demonstrate the power of TS-18.  I want to back test a simple Donchian system that only trades the three least risky (defined by long entry price – long exit price or short entry price – short exit price) markets on a per sector basis.  In this test there will be seven sectors:

  1. Currencies
  2. Energies
  3. Metals
  4. grains
  5. Financials
  6. Softs
  7. Meats

To accomplish this we will need to do the following:

  1. Collect daily risk for long and short trades
  2. Store that data for later use
  3. Sort long and short risk from lowest to highest
  4. Assign each market to its correct sector
  5. When signal triggered make sure we can are allowed to execute the long or short trade

Step 1 and 2:

            buyLevel = highest(myHigh,80,curBar,1)
            shortLevel = lowest(myLow,80,curBar,1)
            longExit = lowest(myLow,20,curBar,1)
            shortExit = highest(myHigh,20,curBar,1)
			
            marketVal1[curMarket] = (buyLevel - longExit)*myBPV
            marketVal2[curMarket] = (shortExit - shortLevel)*myBPV
			
			#marketVal1 contains long risk in $s and 
			#marketVal2 contains short risk in $s
Calculate Long/Short Entries/Exits and their Associated Risk Values

Step 3:


    sectMarketRisk.append([0,0,0,0])
	#looks like this [sectorNum, marketNum, longRisk$, shortRisk$]
    canBuyList.append(99999)
    canShortList.append(99999)


	for cnt in range(0,numMarkets):
		#get corresponding sector for the market
		curSect = getCurrentSector(myComNameList[cnt],sectorList) 
		#assign the sectorNum, marketNum and long/short risk to the sectMarketRisk list
		sectMarketRisk[cnt] = (curSect,cnt,marketVal1[cnt],marketVal2[cnt])
		#default canBuy/Short lists to 99999 - can't trade
		canBuyList[cnt] = canShortList[cnt] = 99999
		#copy contents of list to ShortRisk list
		sectMarketShortRisk =sectMarketRisk.copy()
		#copy contents of list ot LongRisk list
		sectMarketLongRisk = sectMarketRisk.copy()
		#sort LongRisk list by first the sectorNum and then longRisk Value
		sectMarketLongRisk.sort(key=operator.itemgetter(0,2),reverse = False)
		#sort ShortRisk list by first the sectorNum and then shortRisk Value
		sectMarketShortRisk.sort(key=operator.itemgetter(0,3),reverse = False)
		
#This is what (partial) the sectMarkRisk list contains:		
20100324	Sector:	Currency	Market:	SF	LongRisk:	11437.5	ShortRisk:	4275
20100324	Sector:	Currency	Market:	EC	LongRisk:	21412.5	ShortRisk:	4837.5
20100324	Sector:	Currency	Market:	BP	LongRisk:	12618.7 ShortRisk:	4975
20100324	Sector:	Currency	Market:	CD	LongRisk:	5760	ShortRisk:	6640
20100324	Sector:	Currency	Market:	DX	LongRisk:	1935	ShortRisk:	6660
20100324	Sector:	Currency	Market:	AD	LongRisk:	4880	ShortRisk:	7080
20100324	Sector:	Currency	Market:	JY	LongRisk:	10250	ShortRisk:	8337.5
20100324	Sector:	Energies	Market:	CL	LongRisk:	7170	ShortRisk:	13510
20100324	Sector:	Energies	Market:	HO	LongRisk:	11428.2	ShortRisk:	12919.2
20100324	Sector:	Energies	Market:	NG	LongRisk:	20650	ShortRisk:	9410
20100324	Sector:	Energies	Market:	RB	LongRisk:	7883.4	ShortRisk:	15548.4
				
#Here is what sectMarketLongRisk looks like sorted 
#So you would trade the DX, AD and CD (long side) only from the Currency Sector		
20100324	Sector:	Currency	Market:	DX	LongRisk:	1935	ShortRisk:	6660			
20100324	Sector:	Currency	Market:	AD	LongRisk:	4880	ShortRisk:	7080
20100324	Sector:	Currency	Market:	CD	LongRisk:	5760	ShortRisk:	6640
20100324	Sector:	Currency	Market:	JY	LongRisk:	10250	ShortRisk:	8337.5
20100324	Sector:	Currency	Market:	SF	LongRisk:	11437.5	ShortRisk:	4275
20100324	Sector:	Currency	Market:	BP	LongRisk:	12618.7	ShortRisk:	4975
20100324	Sector:	Currency	Market:	EC	LongRisk:	21412.5	ShortRisk:	4837.5
---
Sort Trade Risk on Sector Num and Then Risk$

The true beauty of Python lists is all of the different methods you can use on them.  Here I sort the sectorMarketLongRisk first on the sectorNum key and then on the longRisk value key.

Step 4:

Now that we have the long and short risk sorted in ascending order (by sectorNum and then risk), the first three values in each list contains the three least risky long and short markets.  So, you can loop through each sector and insert the market number for the three least risky markets on a sector basis into the CanBuy and CanShort lists.  Before we loop let’s take a look at what the risk lists look like:

20100324   
Currency =   (0,3,1935,6659)(0,2,4880,7079)(0,6,5759,6640)(0,5,10249,8337)(0,1,11437,4275)(0,0,12618,4974)(0,4,21412.5,4837)
Energies =   (1,7,7170,13510)(1,10,7883 15548)(1,8,11428.2,12919)(1,9,20649,9410)
Metals =     (2,15,6769,13619)(2,14,7860,12655)(2,13,9837,16512)(2,11,13979,10129)(2,12,19449,14969)
Grains =     (3,19,2202,2867)(3,18,3787.5,1675.0)(3,20,5869,3260)(3,17,6800.0,2525.0),(3,21,8600.,3429.)(3,16,8662.5,3937.5)
Financials = (4,22,262,650)(4,25,875,2593),(4,26,1453,3265)(4,24,3265,4296.),(4,23,7281,5968)
Softs =      (5,32,2377,5197)(5,30,3065,8764)(5,31,4036,5577)(5,29,7930,3540)(5,28,8568,3206)(5,27,13406,7851)
Meats =      (6,34,2100,3510)(6,33,2659,5189)(6,35,3737,8987)
SectMarketLongRisk

So sector number 0 (Currencies) shows markets 3, 2 and 6 as the least risky currencies.  These are the only markets (DX, AD, CD) that will be allowed from the currency sector to initiate a new trade.   Here is the looping mechanism that converts this data into the CanBuy and CanShort lists.

#Loop through 7 sectors
#Remember
# SectNum MktNum  LongRisk  Short Risk
# (0,     0,      500,      1000)
# Zero    One     Two       Three - >element #
#
for j in range(0,len(sectorList)):
	lsectCnt = 0
	#Loop through 30+ Markets
	for i in range(0,len(sectMarketLongRisk)):
		#If 0 elemenent in each tuple is the current sector
		#And lsectCnt < 3 then assign the 1 element of the
		#Tuple to the canBuyList
		if sectMarketLongRisk[i][0] == j:
			if lsectCnt < 3:
				canBuyList[i] = sectMarketLongRisk[i][1]
			lsectCnt += 1

				ssectCnt = 0
	for i in range(0,len(sectMarketShortRisk)):
		if sectMarketShortRisk[i][0] == j:
			if ssectCnt < 3:
				canShortList[i] = sectMarketShortRisk[i][1]
			ssectCnt += 1
Sort Through Sectors and Pull Out First 3 Markets

After the looping and extraction this is what your CanBuy and CanShort lists look like:

20100324:[3,2,6,999,999,999,999,7,10,8,999,15,14,13,999,999,19,
          18,20,999,999,999,22,25,26,999,999,32,30,31,999,999,999,34,33,35]
20100324:[1,4,0,999,999,999,999,9,8,7,999,11,14,15,999,999,18,
          17,19,999,999,999,22,25,26,999,999,28,29,32,999,999,999,34,33,35]
CanBuy and CanShort Lists

Now that you have these lists you just need to check and see if the current market in the loop is included in the long or short risk lists.  If they are included and sector exposure is less than 3 markets then you can proceed to take the trade.  Here is the if construct:

if myHigh[curBar]>=buyLevel and curMarket in canBuyList and sectorPositions < 3 and mp !=1:
	price = max(myOpen[curBar],buyLevel)
	if mp == 0 : sectorTradesTodayList[curSector] +=1
		tradeName = "Simple Buy"
		numShares = posSize
		if mp <= -1:
			profit,curShares,trades = bookTrade(-1,0,price,myDate[curBar],"RevshrtLiq",curShares)
			marketMonitorList[curMarket].tradesList.append(trades);todaysCTE = profit
			profit,curShares,trades = bookTrade(entry,buy,price,myDate[curBar],tradeName,numShares)
			barsSinceEntry = 1
			marketMonitorList[curMarket].setSysMarkTrackingInfo(tradeName,cumuProfit,mp,barsSinceEntry,curShares,trades)
If Construct To Limit Execution to CanBuy List and Sector Exposure

This was a long post so I will show results of only trading less risky markets on sector basis in the next one.

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About This Site

This site is home to George’s Excellent Adventure into TradingSimula_18 and Python.  George grew tired of the old and expensive back testing software so he created his own and now is able to test and develop  Trend Following Systems utilizing EOD data and EOD intra-testing portfolio management.  This software, TradingSimula_18 can be found in his Trend Following Systems: A DIY Project – Batteries Included book – now in its 2nd edition.

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