Developing and testing trading systems is about more than just entry and exit points. It also has to include a risk management element. The other day I received a question along those lines from a reader of my introductory trading book wanting to learn more about using Metastock.
Hi John,
Chapter 8 makes the following statement:
“An entry rule, in all its glory looks like this:
Go Long/Short n units when x occurs,
where n is either a fixed number or a formula based on risk”
Well, I thought it would be bold to just ask a MetaStock question to you, so I did check out the product’s help, couldn’t find an answer. Then went on to trade2win, and found some comments, but since I still have some doubts, I kindly ask your help.
My problem is I can go to the system tester and enter a condition for entry long or short, but it seems I can’t find a way to enter a value or a formula for “n”, in other words, how do you take care of money management when building your test?
Thank you in advance for any help, it would be greatly appreciated.
My response is to provide a picture. The following is a screen grab of the System Editor dialog box from Version 10.
As the red highlight indicates, when you do a Buy or Sell order you can define the Entry Size. The default setting will come from your overall settings. If, however, you select one of the other options (units, %) the formula bar will become editable. That means you do a customized determination of position sizing.
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About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
** See John’s full bio.
