Stock Trading System Benchmark Indicator

Today, we’ll build a Stock Trading System Benchmark Indicator based on the SPDR S&P 500 Exchange Traded Fund (Symbol: SPY). In finance, the benchmark serves as an external reference parameter to value a particular market segment.

Let’s look at how to create a buy-and-hold indicator in the context of comparing stock trading systems. The benchmark for our stock trade system is the conventional buy and hold technique.

We first figure out how much Capital I’ll need, and then I buy the ETF SPY for the same amount and keep it for the entirety of my strategy.

Here’s what our SPDR S&P 500 ETF SPY chart looks like with the buy and hold option switched on:

Stock Trading System SPDR S&P 500 ETF SPY

For example, if I had purchased $ 10,000 worth of SPY stocks at the start of 2007 and sold them at the close of 2017, I would have made a profit of $ 8,718.

This is a long-standing and antiquated investment approach. To avoid an event like a flash crash, we must spend less time in the market these days.

The buy and hold approach is sometimes more effective, but it also results in larger drawdowns. In 2008, for example, we had a significant drawdown.

We created a Stock Trading System Benchmark Indicator that shows two trend lines.

The Benchmark Indicator

We’re testing it with a $ 10,000 starting fund. We’re using a stock trading system approach that has a total of $ 10,000 in assets. With risk management in place, I could have made almost $ 6,000 with only 80 transactions and spent less time completely invested in the market.

Stock Trading System Benchmark Indicator

Despite having spent over half of the time, the strategy in question significantly outperformed the standard in drawdown and capital employed.

The code for the Stock Trading System Benchmark Indicator is as follows in TradeStation and Multicharts:

Input: Money(10000);

vars: 
First_Close(0), 
color(white), 
BenchMark(0), 
N_contracts(0), 
C_contracts(0);

If First_Close = 0 then
Begin
First_Close = Close;
C_contracts = (Money/Close);
N_contracts = round(C_contracts,0);
End;

BenchMark = N_contracts*(Close - First_Close);

Plot1( BenchMark, "BenchMark",color,0,3 );

This is the Equity Line Indicator’s code in EasyLanguage and PowerLanguage for TradeStation and Multicharts:

Vars:
Equity(0),
Color(Red);

Equity = (I_ClosedEquity);

If Equity > 0 then
Color = Green;

If Equity < 0 then
Color = Red;

Plot1( Equity,”Equity”,Color ) ;

 Some resources are insight:

INVESTOPEDIA: Benchmark

INVESTOPEDIA: SPY: SPDR S&P 500 Trust ETF