Tuesday, May 12, 2015

Excel For Trading Models - Using Excel's Capabilities To Make Money

By Carl Keenan


Wall Street uses Excel for trading on a daily basis. The average investor or trader doesn't use Excel this way, but the techniques for implementing Excel in a trading environment are relatively simple. You just need to know how you intend to use Excel, and what kind of trading workflow works for you.

One of the first considerations is how you will use Excel for trading. Will you be importing price data into a spreadsheet? Will you track your positions, profits, and losses there? Do you intend to integrate it with an existing trading platform? Do you want to develop a complete Excel for trading system with VBA, charts, order entry, and such?

There are a variety of functional options you can go with. Stock and futures watch lists are popular. These can be quite elaborate with multiple prices, colors, positions, profits, losses, etc. Real time or end of day P&L reports can be built to track your performance across trades. Tracking portfolio performance and attribution is another use. A trading log where you record your trade decision steps, emotions and results on each trade can help develop discipline and consistency. The main uses for Excel in trading include signal generation, risk and trade management. Many of these data points can be charted to provide a "one look" view.

Excel for trading depends on data. Once that's imported, what will you do with the data? Good options are watch lists, blotters, P&L statements, portfolio trackers, trade logs and heat maps. These can be used for intraday or historical analysis, trading performance, risk and trade management. Analytics like delta, drawdown, maximum adverse excursion, maximum profit realized or stop loss points can be calculated and displayed. There are unlimited uses of Excel for trading so feel free to let your imagination flow.

Implementing Excel for trading requires planning your spreadsheet designs to integrate everything together correctly. The key things are having accurate and well tested formulas, and being able to find what you need when you need it. Multiple simpler spreadsheets linked together or a single large spreadsheet with multiple tabs are possible. You will likely have a mixture as you build out your spreadsheets. Keep in mind that it's easier to manage small workbooks with fewer tabs and they take up less memory and run faster. The ideal approach is to design in a modular way with each spreadsheet for a specific purpose. Be careful of external links, however. These can break and slow things down, and are difficult to debug if you have a lot of them. Also, if your spreadsheets have more than 10,000 rows of data, charts, and multiple tabs together then they may slow down. It's risky to have your whole trading workflow in one Excel file. Be sure to back up your files externally.

These ideas should help you get started using Excel for trading to improve your trade processes and increase profits with less risk.




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