Trading system analysis: Then and now

The calculator was a major leap forward in trading strategy implementation, not just in terms of how it streamlined the work of professional traders, but in how it allowed non-pros to use advanced trading techniques. As we saw in our first installment in this series, the calculator soon was supplanted by the computer and purpose-built software that did the heavy lifting for you.

Profit Taker was the first commercial trading platform that could backtest trading strategies, but it offered a single system for which the user only could change parameters. Soon, traders could not only test — and modify — trading systems on their own, but they were able to start from scratch, applying their own ideas to the markets. Walk-forward testing, portfolio-based analysis and real-time optimization followed.

Today, this path has led us to fully automated backtesting and algorithmic trading, but this wasn’t necessarily a smooth progression, and it didn’t happen without a few detours and speed bumps. Here, we’ll look at the software and technology that created the framework that most are familiar with today. (Note that some of this software is still commercially available. This historical account is not intended to be a review of current features, just a look at how ideas, tools and analysis have evolved in an effort to understand what the next steps may be.)

Excalibur

Excalibur Testing Software by Futures Truth was one of the first full-featured backtesting platforms. The software development process started in 1985 on a CROMEMCO 3 computer utilizing FORTRAN IV. The computer had a whopping 64k of RAM and used 5-1/4-inch floppy drives. Trader John Hill spent nearly $20,000 for the computer and hard drive — an enormous sum for a machine with the fraction of the computing power available today for a few hundred bucks.

Wayne Andrews, a close friend of Hill’s and a computer scientist, was instrumental in helping Hill acquire the CROMEMCO, as well as providing his own personal tick level price data for Hill to use. (The data eventually grew into a business of its own, sold by Tick-Data out of Colorado and Commodity Services Incorporated out of Florida.)

During this same time, the Apple Macintosh was rising in popularity and power. John Fisher, who Hill met while looking at computer books at a local Computerland store in 1985, liked the unique graphic user interface, or GUI, and ported Excalibur to a Macintosh 68020. This helped solve a major problem for Hill. As he explained to Fisher at the time, he wanted a piece of software simple enough where he could code his trading ideas and have the software produce performance metrics on those ideas. Hill had been doing this by hand, but his many ideas quickly outgrew this laborious approach. 

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