Productivity refers to how hard your money works under a particular trading strategy.   Both the number of trades and the average hold time impact how efficiently a strategy manages funds.

Extra Insight: 

The number of trades reflects the opportunity to trade.   In general, a higher number is better for a profitable strategy because it means more opportunity to make money.   However, if a strategy is not profitable or breaks even, more trades just means more commissions paid to the broker and more of the trader’s time consumed.  (Even with completely automated trading, a trader still has to deal with record-keeping and other administrative tasks that grow with the number of trades.)

Backtesting short-term strategies over any significant time period generates many more trades than the average trader can afford.    Realistically, traders need to choose which signals to take.   Eventually, I’d like to make the selection criteria part of the backtest so that it can be measured and compared as well.    Right now, my backtesting engine, TradeStation, only tests one stock at a time and cannot simulate a whole portfolio.

All else being equal, the trading strategy with the smallest average hold time is best.   Not all things are equal in practice though.   People may seek out longer or shorter hold times based on their temperment, tax situation, global market views, margin, and a host of other factors.   The average hold time gives insight into which strategies will fit these other requirements.  I also use it to classify different strategies and compare those with similar hold times.

Updated 11/12/08.

Tags: backtesting, hold time, number of trades, productivity, strategy, TradeStation, trading

TradeStation Strategy

A Trading Strategy is the collection of rules about when to enter and exit trades as well as the size of each trade.

Extra Insight:

Sometimes people say “trading system” instead and I do it too.   I really think trading system is larger than just the entry/exit strategies and includes things like record keeping, etc.

TradeStation is a software tool for analysis and backtesting with facilities for creating custom trading strategies.    The image at the top of this article is a screen shot of a very simple entry strategy that buys whenever the stock meets minimum volume requirements.    This obviously is not a tradeable strategy but is something I use as a baseline for comparison.

Updated 11/13/08.

Tags: backtesting, entry, exit, sizing, strategy, system, TradeStation, trading