Cash-symbol-holding-Preference-for-backtests

Maybe meta-strategies is a good place for this. Still I'm not sure whether it can be done right now, maybe some improvements are needed.

Generally I'd agree with Repl. that with Wealth-Lab being position-based, it wouldn't be an easy task to never be holding cash. But your requirements are too open ended. Is cash "not in use" as soon as you exit a Stop or Limit order? And, would you have to sell your QQQ to fund new trades (especially for stop and limit entries).

My sense of this strategy idea is that if you can't find enough stocks to invest or speculate in (and in any market - you can find stocks that doubled even in 2008), then you're either not looking in the right places or then broader market proxies might be a bad place to be. Cash becomes more valuable as stock prices drop. Holding cash is often the right strategy - it's a strategy too.

I see it implemented as a new backtest setting where you could specify the symbol to “hold” for the cash portion of the simulated equity, I know I’ve discussed the idea before with mjj3.

just select a symbol like a Money market ticker such as SPRXX would be just like holding cash.

Yes Cone to your first question. One way I could see doing this is with a One-Triggers-Another type of order.

For example if Buy $500 ABC executes then Sell $500 QQQ and vice-versa.

I'm not sure of the logic behind the statement about finding enough stocks to speculate in when using a strategy with few-many entries and proper position sizing. There are times where a strategy takes on the full number of positions but obviously not when the average deployed capital is 15%.

An IRR metric should give a better comparison between B&H of the benchmark and the strategy, but it doesn't say what would happen if unused cash sat in the benchmark. I.e. it wouldn't give a complete picture of correlation.

If we are able to rest unused cash in the benchmark then you can get a TRUE comparison between the strategy and just holding the benchmark because you are replacing the benchmark when the strategy is in effect.

Glitch, that would be perfect.

QUOTE:
For example if Buy $500 ABC executes then Sell $500 QQQ and vice-versa.

I like this concept. Potentialy a good aplication in dip buyers that alllocate 100% of capital during down turns but minimal during macro trends. It would be nice to have idle funds continuing to work.

However I do see some complexities...:

1) time delays selling index and buying stock (and reverse) may allow for adverse price fluctations resutling in missing entries. (Especially if buy on limits or stops). Depending on individual circumstances this may work for or against you.

2) price fluctuations may also result in inadequate capital available for purchase of stock at the qty desired requiring recalculation or addional selling... introducing more delays.

3) If you are trading fractional markets, index fund may or may not support fractional trading therefore you may find yourself selling more index than needed for the new stock position.

4) Broker compatability/incompatibility with complex order types.
Some Cypto platforms allow for a "swap" trade. ie; swap $200 worth of BTC for $200 of ETH thus eliminating much of 1 & 2 above as its a single $ based order. Other brokerages may not be so accommodating.

To run with the example above, I think the order would need to be sell QQQ then buy ABC... Sell ABC then Buy QQQ. Otherwise available capital could be a constraint on execution of new order.

Idea: Perhaps a % of Equity should always be held in cash as a reserve/buffer for unexpected price/qty variances to ensure position entries are not hindered by some of the above issues. This might look something like:

IF trade is "from strategy" then use any available cash up to 100% - however IF trade is index "idle cash growth" position allocate all available cash (less buffer as % of Total Equity) to idle cash growth position.

I think a strategy could be coded to do this for you which would allow for holding a weighted portfolio of index funds. It's not necessarily required as a program feature (but that would be nice).

Ideally, instead of a single security it would be nice for the underlying to be a strategy.

Cone, to your point above, cash is very much a position. The benefit to returns though to have your strategy have an underlying set of investments instead of cash is significant. Think of a simple dip buying strategy that under performs in strong trending markets because there are no dips. To place your cash funds in the SPY/QQQ/VTI/SHY will significantly improve performance of that strategy. If you have an underlying etf strategy for excess cash you can further enhance the returns.

I've messed around trying to implement it in various different ways with limited success.

Possible solutions ?:
- have the ability to have "Order Sends Order" transactions (this would work for trading and modeling)
- Meta Strategy Enhancement (works for modeling but not trading as MS don't run in SM)
- have an event that gets called after a trade has been executed OnTradeExecution() that allows the user to check current equity and produce trades that essentially trade the equity curve. Not sure how or if this would fit into the current backtest routine.

Obviously this whole concept complicates matters. It's essentially a meta strategy with dynamic/prioritized capital allocation.

Thanks for the lesson guys! Understood.

I think the discussion is here is helpful. Let's turn it into a feature request, and we'll re-title this to something like "Cash Symbol Holding Preference for Backtests".

Thanks guys!

QUOTE:
Let's turn it into a feature request, and we'll re-title this to something like "Cash Symbol Holding Preference for Backtests".

Done.