An interesting tool - StrategyDesk from Ameritrade

[maaakri]

I stumbled accidently on this new tool in my Ameritrade account. It might be pretty amazing, it might also be useles...

The promise of this tool is this:
You can create rules based on our 3 Greens to get in, 2 Reds to get out. Then, you can backtest stocks by applying this rule. Once you are happy with the backtest, you can even setup automatic trading based on these rules!

What they claim is the ultimate dream of Rule1 investors. you don't even need to spend 15 minutes a week- just tell it to follow Rule1 and the software will do it for you!

The reality is this:
This tool was built by people with no exposure to UI design. They have little documentation and I'm not fully convinced that their backtesting engine works as expected.

Those of you who have Ameritrade, try it out yourself and come back here and share what you found. If we can make it work, then this could be a great tool to automate rule1.

You can find out more about it by searching for StrategyDesk in Google.

[jcase4]

I briefly played with it with the idea of doing some backtesting. I readliy admit that I didn't spend a great deal of time on it but I was having trouble establishing criteria for a Rule 1 compatible strategy that didn't result in a TON of trading activity. Perhaps someone more knowledgeable than myself would have better results.

[dwperley]

I have to admit the StrategyDesk UI is not the best, but the ability to create formulas provides the user with a great deal of flexiblility (e.g. changing the MACD numbers to reflect those described in Rule #1). When I first started with the tool I created 3 strategies, one for each of the Rule #1 checks and they all appeared to signal correctly when compared with the waveforms from MSN Money. I could have used the StrategyDesk waveforms but I thought MSN Money would be a better cross check. The problem I had was that when I combined all 3 checks (MA,Stochastic & MACD) in to one strategy my triggers were incorrect. At this point I thought I would give the StrategyDesk help line a call. Steve at the StrategyDesk was very helpful and after I explained exactly what I was trying to accomplish he was able to make the corrections and we had working BUY and SELL formulas. Shown below are the BUY and SELL formulas you need to create a Rule #1 Strategy:

Rule #1 3 Tools Buy Formula:
---------------------------
Bar[Close,D] > MovingAverage[MA,Close,10,0,D]
AND
Stochastic[StocK,14,5,3,D] > Stochastic[StocD,14,5,3,D]
AND
MACD[Diff,Close,8,17,9,D] > 0

Rule #1 3 Tools Sell Formula:
---------------------------
Bar[Close,D] < MovingAverage[MA,Close,10,0,D]
AND
Stochastic[StocK,14,5,3,D] < Stochastic[StocD,14,5,3,D]
AND
MACD[Diff,Close,8,17,9,D] < 0

One feature the backtesting tool does not have is the ablilty to reinvest all the proceeds from the previous trade. The tool only allows you to reinvest the same # of shares or the same dollar amount. I have requested they enhance the tool to allow reinvesting of all proceeds. I created a crude Excel spreadsheet to compute the Rule #1 trading gain and Buy&Hold gain just to compare.

I would like to compare the results I had backtesting the example on page 257 in "Rule #1". On that page they show trades of their example on Cheesecake Factory (CAKE) from 13Mar03 through 31Dec03. Could someone complete this backtest and provide their trades, their Rule #1 trade gain, and their Buy&Hold gain for CAKE during that time period? Let me know what you get. I would be very interested to know.

[rsspartan]

I plugged in your formulas and this is what I got for CAKE during the period of time mentioned in the book. I am not sure if I am reading this correctly but it seems a buy & hold approach during that time would have been more profitable?

[dwperley]

I am not sure why but I received slightly different results when I backtest CAKE 13Mar03-31Dec03. Obviously if we use the same formulas and settings we should get the same results. I have run my backtest serveral times and it is consistent. In any event your conclusion was similar to mine in that BUY & HOLD would have had a substantially higher return than following the 3 Tools as described in Rule #1. In my backtest with TDAmeritrade StrategyDesk for CAKE from 13Mar03-31Dec03 my 3 Tools overall gain for the period was 15.2% whereas the BUY & HOLD gain was 43%. Whiile I am not advocating a BUY & HOLD strategy we see at least from this one backtest that we gave up substantial gains using the 3 Tools method. Here are some key points I have learned with this backtesting:

• The TD Ameritrade Strategy Desk appears to work quite well for backtesting the 3 Tools strategy from Rule #1.
• Backtesting using Stategy Desk is much faster than analyzing waveforms manually.
• At least from the few tests (just a handfull) a BUY & HOLD strategy yielded substantially higher gains than the 3 Tools strategy. As I said I just ran a handfull of tests but I did find in one backtest where the 3 Tools actually beat out BUY & HOLD.
• My backtests using TD Ameritrade Strategy Desk and manually verifying using the stock charts from MSN Money show that the CAKE trading example on page 257 of the Rule #1 book do not appear to be following the 3 Tools. My backtest using the 3 Tools shows a 15.2% total return for the period where the example in the book shows something like a 67% gain (I did not add in the $500/mo as the book so I could compare gains).

Attached are my backtesting results for CAKE for 13Mar03-31Dec03

[JK100]

i believe that on strong bull markets you do better with buy&hold, but you have no insurance against a crash or volatility.

what are the risks of actually trading with these rules with strategy desk?

any thoughts?

JK

[bb62rich]

Ok...I've seen this mentioned over on Phil's website and now here. What's the deal with the "three greens and two reds?" Is this some sort of program that gives signals?

[dcarlson53]

Phil explains how he uses Technical tools to move in and out in his book he explains how you can set up the charts on MSN to signal when and how to do it here is info from his site Rule #1 Blog: Phil Town on Investing: USING THE ARROWS OR NOT

[investor999]

Hi guys!
I love this forum :-) I really like the sound of this tool, and wondered how i could use it? Do i need an account, and if so is it available to people like me based in the UK?

Thanks for your advice, all comments welcome

[dwperley]

Originally Posted by investor999

Hi guys!
I love this forum :-) I really like the sound of this tool, and wondered how i could use it? Do i need an account, and if so is it available to people like me based in the UK?

Thanks for your advice, all comments welcome

Yes, you do need an Ameritrade account to have access to StrategyDesk. As far as availability in the UK I do not know but a quick call/e-mail to Ameritrade should answer that question. The StrategyDesk can be used in a wide variety of ways. Here are 3 key uses I have found as they relate to Rule #1 investing:

• Ability to quickly backtest a technical trading strategy such as the 3 tools described in Rule #1.
• Ability to be notified (via e-mail or green/red indicators) when the 3 tools say Buy or Sell for a stock or stocks.
• Ability to automatically trade based on the 3 Tools strategy. This one I find a little scary and would not recommend until I was very sure of the strategy. Also I would like to see the StrategyDesk software modified to reinvest all the proceeds from the previous sale (currently the tool only allows you to reinvest a fixed amount of shares or dollars). I have requested this enhancemnent but I am not holding my breath.