Price Behavior Explorer Charts

Price Behavior Explorer

How Price Behavior Explorer Works

The Price Behavior Explorer illustrates how the market was behaving while you were in a position.

It answers questions like:

  • What was happening to the market after I bought, was it growing or what?
  • How many of my trades were short-living, and how many of them were longer?

You can use this chart to discover if you were buying and selling at the right time, as well as to discover ways for improving your exit conditions.

Price Behavior Explorer

Each position you had has a “track”, which is essentially a piece of price action for the time period while you were in that trade.

For example, suppose that you had a single position. For the first candle after your Entry, the price has changed by +1% (vs. the Entry price). For the second candle, the market kept rising and you made +2%. For the third candle, the price slightly retraced and you were at +1%. For the fourth candle, the market went up +3% and you exited (e.g. you’ve met your exit criteria of SMA crossing etc.).

You can track the position like this:

Tracking Chart with One Line

Usually, your strategy has more than one trade after you backtest it. All the trades can have different length and price behavior. The chart below shows what that would look like if you tracked all of your positions.

Tracking Chart with Multiple Lines

Since this chart quickly becomes messy, we create several different aggregate lines:

  • Average Track
  • 25th Percentile
  • 75th Percentile
  • Maximum
  • Minimum

These lines yield the the chart below.

Tracking Chart with Envelopes

While the chart is still a little busy, it’s incredibly useful when you master it.

In a single chart, you can instantly understand if your strategy identifies the market conditions you wanted it to identify For example, if you’re building a trend-following long strategy, then you would want your Mean line (along with the whole 25%-75% cloud) being above zero all the time.

On Random Control Line

The Random Control Line, which is the dotted line on the Price Behavior Chart, helps you understand if your strategy is the result of an otherwise rising market or the strategy itself. In other words, it tells you if you’re really responsible for the gains or if the market was simply moving higher.

In order to see how it works, suppose that you’ve backtested your strategy and your strategy generated 50 trades — the longest of them being 40 candles long. In this case, Strategy Explorer picks 50 random points on the same price chart where you tested your strategy, and collects 40-candles-long tracks starting at each of them. After that, it calculates the Average Price Behavior line (exactly the same math as behind green “avg” line on the chart above) and paints it on your Price Behavior chart as a dotted line.

If you’re building a long-trading strategy and your Average Price Behavior line is above the Random Control line, then this means that your strategy has picked the time frames when market was rising better/faster than it did in general (for a given depth of backtesting). The Random Control line works the best when you’ve got a decent number of trades and when all of them are having approximately the same length (this means there’s no difference by a power of 10).