This indicator is used to analyze the effectiveness of automated strategies. The GlassBox dynamically monitors the maximum favorable excursion (MFE) and maximum adverse excursion (MAE) of a recent sample of trade signals produced by those strategies. By manipulating the Target %Profitable, Minimum MFE, and Minimum MFE/MAE variables, the user can then determine which strategies are plotted on the price chart.
The Strategies
The strategies tested by the GlassBox are based on eight signals. Four of the signals are "fast" signals; four are "slow" signals. Each of these eight individual signals is itself a strategy, and by combining each fast signal with each of the four possible slow signals an additional sixteen combination strategies are generated.
Combination strategies work in the following way: in order for the Fast Signal 1 x Slow Signal 1 Combination Strategy to signal a long entry, both signals must be signaling a long simultaneously. A Combination Strategy trade is closed when either one of the two component signals is no longer valid.
Single Strategies and Combination Strategies together allow a total of twenty-four strategies to be stored and analyzed.
Signal Inputs
Each of the eight basic signals has five potential inputs.
1) Indicator: The name of the indicator, with its parameters in parentheses. Example: A MACD with standard settings would be MACD(12,26,9).
2) Plot: If the indicator entered in (1) has multiple plots, the name of the plot used for the signal is entered here. Example: If RSI(14,3) is the indicator entered in (1), entering "Avg" as the Plot input would mean that RSI(14,3).Avg is used for this signal. If this input is left at “Default,” Plot[0] will be used.
3) Slope Signal: If set to "true", the slope of the indicator plot selected in input (2) is used as the signal. A positive slope will trigger a long position, a slope of zero will signal a flat market position, and a negative slope triggers a short position.
4) Price Cross: If set to true, a long position will be triggered when price crosses above the indicator plot chosen in input (2). If price crosses below the indicator plot a short position will be triggered. Example: A price cross would be the approach taken to generate a long signal when price crosses above a moving average.
5) Cross Value: If neither the slope signal approach nor the price cross is chosen, the final option is the value cross. When the indicator plot chosen in input (2) crosses above the Cross Value a long signal is generated; when it crosses below a short signal fires. Example: The value cross approach is the approach taken to generate signals with oscillators. A sell signal can be generated when the RSI(14,3).Avg plot crosses below the value 70. A long signal would also be generated when the RSI(14,3).Avg plot crosses above 70.
Strategy Analysis Parameters
The Strategy Analysis Parameters portion of the indicator panel is where the user specifies those parameters used to analyze the twenty-four strategies. The GlassBox analyzes strategies according to the following logic:
There is a set number of trades stored in memory for each strategy. In order for a trade to be stored in memory, it must be open for a minimum number of bars. The user can specify a target percentage for “profitable” trades, and the GlassBox will search each strategy for the smallest favorable excursion reached by the target percentage of the trades stored in memory. This is the Target MFE. The GlassBox will then select the largest adverse excursion for the bank of trade signals that reached this Target MFE. This value is the Target MAE.
The Strategy Analysis Parameters are:
1) Trade Memory: The number of trades stored in memory for each strategy.
2) Minimum Bars: The minimum number of bars a trade must be active before it is stored in memory.
3) Target %P: The target percent profitable desired by the user. This is the percentage of the trades stored in memory that reach the Target MFE without going beyond the …