- ago
Do we need two different transaction weights for each entry in a portfolio backtest, if you use 2 entry blocks in a building blocks strategy (and link them to an open position count, for example)?

How does it work with the sorting of the signals according to transaction weight? Does it work in this case?

Because you could, for example, sort Entry 1 with the highest RSI while sorting Entry 2 with the lowest RSI. The signal sorting is then incorrect cumulatively across both entries, isn't it?

What should you do if you want to use 2 or more entry blocks? same priority?

Thank you!
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- ago
#1
Each bar that is processed, all of the entries from any number of blocks are sorted based on transaction weight, all at once.
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#2
Thanks. But unfortunately I don't understand this answer.

Ultimately, does the prioritization work with two entry blocks with different priorities with regard to correct signal sorting?
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#3
Can you lay out an example? I’m having a hard time getting at what you’re asking.
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Cone7
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#4
I think he's describing what's known as "shooting yourself in the foot":



Okay, the thing to know is this:
HIGHER or more-positive value signal weights are picked FIRST - always.

When you choose LOWEST weight priority, the value of the indicator is simply negated. That makes an indicator with a range from 0 to 100 more positive for values nearer to 0.

It doesn't really matter what the indicators are, but in a situation like the one pictured is that all the signals are sorted by the Weight value. It's clear that for the bottom conditions, weights will go from 0 to 100 and the higher values will have more priority.

The top condition will contribute weights from 0 to -100. So the more-positive weights (closer to zero) will have more priority, however, all those weights are negated so they'll never have values greater than the lower condition, which has all positive weights.

Also, note that if you don't assign weights, Wealth-Lab assigns a random weight with a range from 0 to 1.

The moral of the story is, "don't shoot yourself in the foot". Assign the same weight indicator and priority to get a sensible result.

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Best Answer
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#5
Thanks very much.
Yes - that's exactly what I wanted to ask about this situation. That also answered my question. In such a case - with two entry blocks - the same priority should be used for both blocks, otherwise the signal display is no longer usable.
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#6
Does weight assignment also work for selling blocks ?





Thanks
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Cone7
- ago
#7
No, weights are ignored for exits.

The whole purpose of weights (a.k.a., signal priority) is to give the backtester (and trader) the ability to choose which signals should be processed first, which gives them first access to "buying power". Once the buying power is used up, signals that are processed later (lower weight/priority) won't be bought, so they become NSF (Not Sufficient Funds) positions and ignored by the backtest.

Exits always add to buying power, so exits are always processed.
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#8
QUOTE:
Exits always add to buying power, so exits are always processed.


Perfect - thank you ! Are exits processed first in example above? ie buying power restored before buy
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#9
Yes, exits are processed first by the backtester to reclaim the buying power as Cone suggested.
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#10
Thank you both - clarity much appreciated
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Cone7
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#11
QUOTE:
Yes, exits are processed first ..
Let's amend that to "Market order exits and stop/limit exit orders that would fill "at Market" are always processed first. That would be followed by Market order entries...

.. but what happens after that with stop/limit exits and entries?
With the advanced granular processing, the order would be based on the time-of-day. So for the stop/limit case, both entries and exits would be controlled by a "weight" or "priority".

Consequently, I'd have to say (without checking first) that the backtester would (or should) follow weights when processing stop/limit orders. But this would be a separate sort than "at Market" fills.

Edit -
after checking, stop/limit entries are processed before stop/limit exits, a conservative approach. I'm not even sure if that changes for granular processing. Glitch?
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