With the release of TradingSolutions v3.2, we introduced a new feature called Optimizable Trading Styles, which allows you to optimize Stop Loss, Entry Delay, Profit Taking and Stop Length for your TradingSolutions models.
Let's take the Microchip Technology Inc. (MCHP), which is currently a model in the Solution Service, and add an optimized Stop Length to improve models return and sharpe ratio.
First, let's find where the new features are located in the interface.
Right-click on Microchip Technology Inc. (MCHP) and choose Modify Fields to bring up the Data Fields tab in the Modify Data Series dialog. Next, scroll down and select "Model: Optimal Signal (..)" and click the button that says Copy. Select the copy of the model and click on the button that says Modify. Next, choose the tab that says Trading Style and click the Override Base Trading Style option on the dialog screen as well as "Include trading style in optimization" checkbox.
Next, let's optimize for Stop Length based on the Sharpe Ratio.
From the drop down menu next to "Optimize signals based on:" choose "Profits, avoiding volatility (Sharpe Ratio)" and then check the box next to Stop Length. Verify that the "Re-optimize trading style settings on save" is checked and Re-enter is set to Always and then click the OK button.
Now, lets evaluate our analysis over the most recent year (time of analysis 07/21/05 through 07/21/06)
Model w/o Optimized Stop Loss and Stop Length had an 52.91% Annualized Return with a Sharpe Ratio of 1.82.
Model w/ Optimized Stop Loss and Stop Length had an 56.44% Annualized Return with a Sharpe Ratio of 1.89.
That is an increase of over 4% annualized return and 0.07 Sharpe Ratio just by adding a Stop Length to an already successful model!
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